Price hikes in automobile sector coming at a wrong time, may stall growth, feels Pincap MD Praveen Sinha

After facing tough times in the recent past and the coronavirus pandemic, sending the industry to almost zero sales level, the Indian automobile industry showed signs of recovery in the final quarter of the year 2020. However, a hike of prices across companies and segments coupled by a steep rise in fuel prices off late may prove to be yet another setback for the industry that has struggled in the recent years, feels Praveen Sinha Pincap MD . Almost all the major players in the country such as Maruti, Hyundai, Renault, Tata, Bajaj Auto Ltd. etc have raised the prices in January, 2021 ushering in another uncertain quarter for the industry as a whole.

Why did the costs go up?

The rising costs are largely brought about by the shift to BS VI configurations which require higher volumes of precious metals like palladium and rhodium.

Prices of raw materials involving metals, plastics and others are up enormously. Rhodium, for example, used to be at $2,000; it is now at $16,000. Since this year, the input costs are up sharply. The price hike has to happen. Higher costs cannot be held back. However, we have to maintain a balance between customer expectations and business prudence,” said Shashank Srivastava, Executive Director, Marketing & Sales, Maruti Suzuki.

 In an industry already reeling with the effects of hikes in the last couple of years, the recent hikes contribute to the further weak sentiment in the market. “It is a classic catch 22, on one side the prices have to be increased because the costs simply cannot be borne by the manufacturers but on another side the slowdown brought about by the pandemic will make purchases very difficult for the average consumer, added Praveen Sinha. With petrol and diesel both touching all-time highs earlier in cities like Delhi and Mumbai, demand for both personal and commercial vehicles could take a further hit.

The road ahead for the industry

Despite the bleak outlook, manufacturers continue to remain bullish on the Indian market with several high profile launches set for Q1 this year. There is also the news of several EV (Electronic Vehicle) launches this year and the recent news around Tesla’s entry into the country has turned a lot of heads.

“While I believe, EVs will eventually be the go to standard, there is scope for pessimism given their high costs and limitations in their present iterations. Most Indian consumers are shying away even from the entry level segments at present and it’s hard to see what kind of acceptance a relatively niche segment like EVs will get in the country,” feels Praveen Sinha.

“Manufacturers will have to work harder to offer products which are value for money considering the current costs of ownerships and work with financial partners to offer sweeter ownership terms to the end consumers. Consumers need to be eased into the hikes and be given options to offset costs. Some companies are already doing this via attractive rates of interest, exchange discounts and other attractive deals and this is one way to keep the market interested in their offerings”, concludes Praveen Sinha.