The last time we spoke you said that you still had not decided on the quantum of price hikes that you will look to pass on to consumers. Where are we in terms of price hikes and what kind of price hikes are we looking at?
There was a conversion from BS-IV to BS-VI emission regulation as well as some safety regulations which were put in place last year in April 2020 and in October 2019. That involved a lot of costs and investment from the OEMs including Maruti Suzuki and we thought we would pass on this price in 2021. Unfortunately, the pandemic created an unprecedented situation and in the first few quarters, because of the collapse of demand, the price couldn’t be hiked at that time. However, in January this year, we had to take a small price hike of about 1.3%. The reason for that was that apart from the regulatory cost increase, there was also a huge increase in raw material costs – prices of steel, plastics, rubber, copper, precious metals like palladium, rhodium all went up.
So we had to slightly increase the price in January but there was a general softness in demand and we could not pass on the entire cost to the consumers. We thought that the input cost will come down going forward but the projections are that these costs will continue to increase and remain high for the next few quarters. As a result, very reluctantly, we have to pass on part of this cost increase in the form of price rises in April.
What kind of hikes are we talking about?
I am not able to specify the quantum at this time because we are still working that out. However, it will be across the board because the input costs have increased for all the models.
Secondly it is likely to be higher than what we have done so far because in January our hike was roughly 1.3% but obviously that does not take care of all the cost increases. We have to walk a fine line between the bottom line and top line. We have to see that demand sustains. The demand which is coming back, is still in a nascent stage and we have to take care of that. We should not really compromise it. At the same time, there is also a question of financial prudence, as to how much of the cost can we continue to absorb. So, we will walk that fine line and we will let you know the amount of hike as soon as we decide on it.
You also spoke about the kind of impact that the price hikes may have on the demand. Where do things stand so far because after the Diwali season, it seemed at one point that demand will sustain. Do you fear a dip in demand following price hikes?
It is always a question that keeps bothering us. In 2019-20, the cost of acquisition going up was the main reason why the market came down. That was in the form of different taxes or regulatory requirements or insurance increases or road tax, registration taxes increase, etc. This is always a question which we keep grappling with.
The Indian market is highly price sensitive though it varies from segment to segment. The demand has come back and in the current month, we see a continuous flow of enquiries from retail as well as bookings. So far, the demand has sustained. Looking forward, we have to be very careful about the sentiments relating to the Covid because we have always assumed in the last few months that the Covid sentiments will get better as the economy improves. Those two factors which are extremely important for car demand in the future.
If there is a second wave or if the sentiment comes down a little bit, then generally for discretionary purchases like cars, the sentiment has a very disproportionate effect on sales both on the positive side and on the negative side. We have to be careful about that and when we raise prices, we will be quite mindful of demand sensitivities.
The government has announced parts of the scrappage policy and has asked car markers to give discounts of close to 5% if a car is being scrapped. Maruti Chairman Mr RC Bhargava does not see any reason why a 5% discount should be given by an OEM for an unfit car. Are car makers sticking to their stance of not giving 5% discount for an unfit vehicle?
It is like this. First of all, the scrappage policy is a great initiative. It helps the environment. Forget about the auto industry. The scrappage policy helps to get very old cars out off the roads and that would surely help in terms of emission. So getting unfit vehicles off the roads is a good beginning.
As far as what incentives need to be given to consumers, we can have different opinions and I think we need to look at the fine print when the scrappage policy actually comes out and then take a position on it. However, one thing is clear that in a country like India, the starting point is important. As we go along, I am sure there will be a tweaking of whatever policy is announced.
