Car makers use pressure tactics to clear inventories


Faced with a steep drop in sales, car manufacturers have found a novel way to clear the stock: offer heavy discounts and at the same time announce plans to raise prices in due course.

According to the Society of Indian Automobile Manufacturers (Siam) figures, car sales plunged 19 per cent in August, compared to the same period last year. Siam has also indicated a possible revision in growth forecast for the year.



As vehicle makers stare at one of their worst festive seasons, which usually contributes to 30-40 per cent of yearly sales, major players such as Maruti Suzuki and General Motors have said they are planning to raise prices to offset cost pressures.

While both the companies have claimed that high input costs and adverse currency fluctuations are forcing them to hike prices, the car makers have not disclosed how much will be the increase in prices.

Honda Car India, which has been offering discounts of up to Rs 50,000 on its all petrol line-up (excluding dealer offerings), has gone a step further and already announced an increase in the range of 0.2-2.6 per cent on the Brio, City and Jazz, effective October 1.

“The prices have been revised due to rising input costs, inflationary pressures and increase in freight as a result of the increase in diesel prices,” the company said in a statement. Absence in the diesel segment has impacted Honda the most amongst all companies.

“We have decided to increase price of all models with effect from October 1 due to high input costs, currency fluctuations and freight. We are still evaluating quantum of price increase,” said P Balendran, vice-president (corporate affairs), General Motors.

However, South Korean car brand Hyundai, one of the few high-volume companies that has posted growth this year, will not increase prices for now.

Tata Motors, which posted the biggest growth amongst volume car makers, has also so far not raised prices. The company, however, has refused to give any guidance on the same.

Market watchers say that such price hike announcements were also made during the later part of 2008 by car makers, but were not enforced until the end of that financial year due to continued weakness in demand.

At present, between 12.5 per cent and 15 per cent of the value of the vehicle is offered as discount, which many in the industry consider to be steep. Most car makers had raised prices about six months ago when standard excise duty was raised from 10 to 12 per cent and the excise duty for certain car models from 24 to 27 per cent.

The price hike this time around, analysts say, is more of a tactic to pull would-be car buyers to the showroom. Bhaumik Bhatia, analyst, IDBI Capital, said: “Car makers usually resort to such means to get their inventory moving. They say that they are raising prices now, but could revise their plans later. This is done to get the consumers make the purchase, because nothing else explains the strange phenomenon of discounts and price hikes at the same time. This could work for a week, but not more than that. Things will be back to normal after that.”

According to an executive with a Delhi-based car maker, several dealers in urban centres are currently sitting on extended inventories. “If these stocks don’t get liquidated through discounts and other offers, companies would go for other means including news of price hikes,” he said.