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Falling Rupee: Car Makers Including Toyota and General Motors consider 1-2 Percent Hike In Prices

The prospect of buying a car seems to be inching out of the reach of the budget conscious consumers. Indians who just got a jolt with the steep hike in petrol prices are now forced to digest a 1-2% hike in the cost of their desired cars. The car market threatens to plunge into one of its worst slowdowns as auto majors including Toyota and General Motors are mulling a price hike for the third time during the year. Maruti Suzuki and Hyundai Motors expect to be close on their heels with similar price hikes and are carefully weighing their options. Sales of cars have already seen a steep fall of 3% in sales due to the unfavorable price tags.

Depreciating rupee has induced an upward spike in manufacturing costs and increased the cost burden on imported components. Unable to absorb the price hikes auto majors have been compelled to hike prices.

Sandeep Singh, Deputy MD (Marketing) of Toyota Kirloskar Motors commented, "We have been facing cost pressures over the last few months and have decided to hike the prices. The quantum is yet to be finalised, but the hike should come into effect from June 2012." Toyota's vehicles like Innova and Fortuner have 50% imported parts, building up pressure on the costs.

General Motors expected to affect price hikes form June 1, 2012 but stalled the plans temporarily in the light of the recent hike in the petrol prices which has already agitated the domestic population. Speaking on the Occasion, Mr. P Balendran, Vice-President (Corporate Affairs) of General Motors commented, "We are re-considering plans to increase prices from June as customers are hit by the massive increase in the prices of petrol. We do not want to create a double whammy for customers and are planning to postpone the hike till the conditions improve in the domestic market"

The price hikes have made small hatchbacks dearer by about Rs6,000 while the prices of top end luxury vehicles have escalated by up to Rs5 lakhs. Car companies scaled up their prices by 1.5 to 3 % during Jan 2012 followed by the stinging impact of 2-5% increase in the excise duties, levied by the Union Budget. The impact of the decisions reflected in the falling sales of various car models which plummeted to 1,68,351 units during April 2012.

Maruti has already hiked the prices of their diesel variants. The CFO, Mr Ajay Seth commented, "The rupee fall has been very sharp and taken everyone by surprise. No one would have predicted that the slide will be like this,” He further commented that the rupee had depreciated by about 30% against the dollar since April this year. Though Maruti has a high degree of indigenization, it also has substantial imports, both direct and also through vendors. Mr. Seth added, "The total import content is about 21% of net sales, directly as well as indirectly. There has to be some intervention by the RBI now."

Michael Perschke, head of Audi India said, "With the continuous devaluation of the rupee vs the Euro and the dollar, we cannot rule out the necessity of realigning our pricing."

Arvind Saxena, sales and marketing director at Hyundai India, also expects to hike prices by 1.5-2% due to various factors. "The pressure of rising inflation, higher fuel costs and sharp rupee depreciation has compelled us to look at a price increase on our models. All these factors have now made it very difficult for us to absorb the rising costs."

A senior executive at Maruti commented, "There are intense cost pressures with regard to import of important commodities like steel due to currency and other reasons," Analysts to track the auto industry expect the situation in the distressed auto industry to worsen.

Car makers are finding themselves in a catch 22 situation with an increased demand for diesel cars due to hike in petrol costs which they are unable to satiate owing to inadequate production capacity. There is a huge stock of unsold inventory of petrol cars on which manufacturers cannot afford to offer discounts due to the high production costs. The only way out seems to be to increase exports. Toyota has already started exporting the petrol variants of the Etios sedan.

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