Despite Slowdown, Automakers Hike Prices As Input Costs Rise

Automakers have started increasing prices to offset higher input costs even as they grapple with a slowdown.

Mahindra & Mahindra Ltd. said it will hike prices by 0.5-2.7 percent on an average, according to its exchange filing. That will make its passenger and commercial vehicle models costlier by Rs 5,000-73,000.

“This year has seen record commodity price rise. While we have made efforts to reduce our costs, it has not been possible to hold back the price hikes,” Rajan Wadhera, president (automotive segment) at M&M, said in the filing. “Consequently, we are taking a price hike from April 1.”

Higher prices come when dealers are already sitting on unsold inventory amid weak demand since the Diwali festive season. Passenger vehicle and two-wheeler sales slowed because of costlier fuel and insurance-related higher upfront costs. Discounts since December have failed to lift demand. The slowdown forced M&M and Maruti Suzuki India Ltd.—the nation's largest passenger carmaker—to cut growth forecast. Higher costs only add to their troubles.

Last week, Tata Motors Ltd., too, increased prices of its car and SUVs by up to Rs 25,000. “Changing market conditions, rising input costs and various external economic factors compelled us to consider this price increase,” Mayank Pareek, president (passenger vehicle business unit) at Tata Motors, said in a media statement.

Avinash Gorakshakar, head of research at Joindre Capital Services Ltd., said the price hikes are necessary given the rise in input costs and most automakers take customary increases every year starting April. “This hike will moderately improve their margin, although this may not compensate the volume slowdown completely,” he told BloombergQuint. “The impact of the hikes could reflect from the first quarter of the financial year starting April.”