India's festive car-buying joyride may hit price hike bump

Mumbai: Last year's goods and services tax (GST) rate cuts gave festive season car-buying in the country a powerful tailwind, helping push passenger vehicle sales to nearly half a million.

This year, automakers must chase that high-water mark without the price stimulus that helped deliver it. New launches, bigger discounts and fuller dealer yards are all part of the pitch, but higher vehicle prices could leave buyers doing the arithmetic rather than signing on the dotted line. Some may settle for cheaper variants, others may turn to used cars or put off buying altogether.

The affordability challenge is already visible in the sports utility vehicle (SUV) market, where festive discounts have edged up as companies compete for customers. But incentives may not be enough to overcome buyers' concerns, particularly as they weigh down-payments, equated monthly instalments (EMIs) and ownership costs.

For dealers, the key question is whether showroom enquiries will translate into actual sales.

"Price hikes before Navratri can be a dampener. They could lead to customer setbacks and delays in purchases," said Vikesh Gulati, an automotive dealer. "The biggest challenge is the demand-supply mismatch. The aggression to retail is there, but the desperation to retail is not."

Dealers are carrying elevated inventories ahead of the festive season. While higher stocks allow them to meet a potential surge in demand, unsold vehicles tie up working capital and could increase pressure to offer discounts if retail sales fail to keep pace.

According to Sai Giridhar, president of the Federation of Automobile Dealers Associations (FADA), dealers are better prepared this year.

Affordability Crucial for Buyers

However, converting that readiness into sales will depend on consumer demand, particularly as higher prices could prompt some buyers to delay purchases.

Manufacturers continue to report bookings and are strengthening production and dealer networks. But uncertainty remains over how many prospective buyers will follow through rather than negotiate harder, opt for cheaper models or postpone an upgrade.

"There are early signs of low sentiment and a mood of uncertainty," said an executive at a leading carmaker, pointing to concerns about demand and profitability as commodity costs rise.

Affordability is becoming a crucial consideration for buyers. First-time purchasers must balance upfront payments and EMIs against other household expenses. Existing owners may use the value of their old vehicles to fund an upgrade, while others could consider lower-priced models or the used-car market, said Ravi Bhatia, president of Jato Dynamics. "Last year's post-GST festive surge set a base of nearly five lakh cars. This year, manufacturers are bringing more products and higher incentives, but the buyer's calculation differs," said Bhatia.