Vehicles to get costlier as input costs keep rising

Small cars, sports utility vehicles, sedans and two-wheelers are set to get costlier with automakers raising prices to partially absorb the impact of high material costs.

The country’s largest carmaker Maruti Suzuki Wednesday said it will increase prices across its range of vehicles later this month to partially offset the sharp rise in input costs. This will be the fifth price hike for the company in the last 16 months.

“The expected softening in material costs - which have risen very sharply in the last 18-24 months – has not happened. We have taken internal measures to improve efficiency and productivity. However, given the unprecedented increase in costs of raw materials like steel, copper, plastic, aluminium, rare metals like palladium (used in catalytic converters post BSVI) we have to pass on some of the costs to our customers as a last resort ”, Shashank Srivastava, senior executive director (marketing and sales), Maruti Suzuki told ET. Material costs account for 75-78% of overall costs of a vehicle.

Hero MotoCorp, Honda Cars India and Toyota Kirloskar Motor (TKM) have already effected a price increase this month to counter the rise in procurement cost of materials. With the market leader now announcing a revision in vehicle prices later this month, others are likely to follow suit.

Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicle Business, told ET that over and above a significant rise in key commodity costs and precious metals, there is now a pressure of rising freight cost and increase in semiconductor chip costs, compelling the company to look at a price increase.

"Semiconductor chip costs are increasing every month and now they account for almost 1% of total revenues, so pressure is rising on all fronts .We will be taking a price increase shortly, and the exact quantum is being calculated. We can't pass on the entire cost, so we will try to absorb as well, but the current cost environment has compelled us to look at another price increase," he added.

Pune-based Bajaj Auto has indicated it is likely to hike prices later this month. German carmaker Volkswagen has said it is likely to raise vehicle prices by up to 3% in May. Korean auto major Hyundai, though, maintained it has no plans to raise prices “as of now”.

“Reduced supply, increased demand: It all adds up to higher prices for the new-car-buying public. With the chip shortage limiting the number of vehicles they can build, companies shifted production to high-profit models, which means expensive. We are witnessing significant pricing activity”, said Ravi Bhatia, president at consultancy firm Jato Dynamics, adding, “In January, we had 743 price changes, in March 180 price changes and in April we already have 244 price change announcements. This is significant considering there are just 1200 unique product versions in the market.”

Maruti Suzuki itself has raised vehicle prices four times between January 2021 and March 2022 due to the rise in input costs. The total increase on its vehicles has been around 8.8% in this period. Maruti Suzuki sells a range of vehicles from small car Alto to crossover utility vehicle S-Cross.

In January, the company increased prices by up to 4.3% across its range of vehicles. In September last year, the company hiked prices across its portfolio by an average 1.9%, except on the Celerio. Maruti Suzuki had announced an increase of around 1.8% and 1.4-1.5% in ex-showroom prices (Delhi) across models in April 2020 and January 2020, respectively. The carmaker had also increased prices of CNG vehicles last July.