Cheaper cars set to face brunt of demand cut after price hike

Starting January 1, 2024, those wishing to purchase a new car will have to spend a little more to indulge in the luxury. This is because, apart from Maruti, Tata Motors, M&M, MG, Hyundai, premium car manufacturers such as BMW, Volvo Cars, Audi, and Mercedes-Benz, among others, will also raise prices.

There are at least nine companies that have increased vehicle prices from the new year.

The price hike is in the range of 1-3 percent. It may vary slightly for different models, starting from a few thousand rupees and significantly higher for premium cars.

Now let’s understand the reasons behind this price increase.

Maruti, Tata Motors, M&M, and Audi have attributed the increase to rising costs, citing inflation and a surge in commodity prices.

According to the country’s largest car company Maruti, the company has made efforts to reduce costs, but some impact will still be passed on to customers. The price increase will vary for different models.

Maruti had also increased prices by 0.8% in April 2023.

However, since July, steel prices have been firm, and inflation has also risen.

Auto sales were at a record high in November, and according to dealers, the momentum in sales is expected to continue in December.

This is because crop harvesting has been better than the previous year, and farmers in election states have more cash in hand, influenced by better Minimum Support Prices (MSP).

However, due to year-end, in December, auto companies also offer discounts to clear inventory. But dealers believe that only models with inventory will have discounts. Currently, there are no discounts on SUVs.

According to Avinash Gorakshakar, Director of Research at ProfitMart Securities, most auto companies use January to launch new products and increase prices, and companies also see this time as a recovery in increased spending.

As prices in the auto sector usually increase twice a year, January becomes quite significant.

Now let’s understand if the price increase will have an impact on car sales. If yes, how much? Auto companies and dealers are offering special discounts on current inventory. Experts believe that the increase in prices may lead to an increase in dealer inventory.

In November, car dealers had an inventory of 61 to 64 days, while in October, it was at the level of 63 to 66 days…

The sales of entry-level cars could be adversely affected after the price hike.

Because there is already pressure on the demand for low-priced cars in the passenger vehicle segment and there is concern that the situation will become even more challenging with the increase in prices, especially in the short term.

A 1-2 percent increase in price is considered quite sensitive for customers of low-priced cars. On the other hand, the increase of 1-2 percent in prices doesn’t have much impact on those buying cars priced over 10 lakh rupees.

Avinash Gorakshakar believes that price hikes in January are common in the auto sector, so customers already anticipate these 2-3 percent price hikes each year.

Overall, the price increase happening from January will have an impact on car sales, but mainly on affordable vehicles.

That is, on entry-level cars with lower prices. However, it won’t have a significant effect on the overall health of the auto sector.