Declining value of Rupee likely to create industry wide price hike

The value of the Indian Rupee has been steadily falling over the last two weeks and one of the worst hit are the auto manufacturers. They have been caught in the middle of a sticky situation where on the one had they are having to provide special offers, discounts, promotional scheme to prop up sales and on the other the falling value of the rupee over the last few weeks has made their work quite difficult. It is now evident that they are being forced to raise their prices to retain basic margins.

An Economic Times report says that Mahindra& Mahindra have already raised their prices by up to Rs 6000 across most of its range while GM has hiked the price of the recently launched Enjoy MPV by Rs 10, 000. The other mass manufacturers like Maruti Suzuki, Hyundai and Toyota are also expected to follow suit though the quantum of hike will vary depending on how much their production is localised. Nissan during the launch of the Micra facelift said that it will not hike its prices of the new vehicles but will take steps in this regard if the situation gets worse. 

It is almost certain that the luxury vehicle manufacturers have all been badly hit due to their model of locally assembling certain models using CKD kits. The big German three Audi, Mercedes-Benz and BMW are all expected to soon hike their prices across the range with the three pointed star confirming during the launch of the 2014 E-Class that it was mulling the decision in this regard.

The situation in the industry has been poor for close to six months now due to various reasons, chief of which has been the rather volatile exchange rates. We believe that most manufacturers will take one of the three steps to curb their losses;

a)      Reduce production at their facilities to align inventories with market demand or discontinue the poorest performer in the portfolio to cut costs

b)      Ask the dealers to cut or reduce their margin with the hope that they (dealers) will stick on with the brand through hard times. The dealers in return will most likely be expecting sops and benefits once the situation improves

c)        Focus on the pre-owned/second had cars/ used cars market till the situation improves. Most of the major manufacturers already have a ventures in this sector and are now likely to come up with really heavy discounts and offers to entice customers.

Maruti Suzuki is believed to be taking a different route to keep its numbers up; Instead of new car sales, it is now believed to be re directing its efforts towards after sales and service, though in their case this has never been much of an issue due to their vast network across the country.