Car prices raised, even as discount spree continues

Written by Roudra Bhattacharya | New Delhi | Updated: Sep 22 2013, 02:49am hrs
Car salesCar sales in August were up after a long hiatus largely on the Maruti Suzuki's low base last year.
To push sales in a sluggish market as the festival season sets in, carmakers seem to have come up with a new marketing strategy increase prices and discounts simultaneously. While Hyundai, General Motors and Tata Motors have announced their intent to increase prices across models from October 1, discounts ranging between Rs 20,000 and over Rs 1 lakh continue.

Analysts view the move to entice customers to hasten the purchase decision before the price hike comes into effect, which would help companies boost sales numbers in September. Sales in August were up after a long hiatus largely on the Maruti Suzukis low base last year, when the countrys largest car company by sales witnessed a total shut down at its Manesar plant after a violent labour problem. During the festival season beginning October, manufacturers may try to push sales with even higher discounts on increased prices, analysts point out.

VG Ramakrishnan, MD at Frost & Sullivan, South Asia, told FE that increasing prices right now will give companies room to offer sharper discounts during the festival season to push sales. This strategy has been happening for a while now. Every car marketing executive is under pressure for the last two years and is not able to meet his monthly targets. The idea is that clients will walk in and surely ask for discounts, and the car buying decision can shift at differences as low as R20,000. So if the car company increases prices by 2% and then offers a 1% discount, it still has a decent margin.

This is like sales ploy being used by many companies in the industry. Right now it is very difficult to convince a customer visiting the showroom to purchase a vehicle, added an executive for one of the top carmakers on condition of anonymity.

On Thursday, India's second-largest car maker Hyundai and General Motors said they would increase prices by up to Rs 20,000 and Rs 10,000, respectively. Tata Motors is also reportedly planning a 1-1.5% hike, while Ford raised prices of its models by up to 5% recently. The rationale given is a rise in input costs because of the rupee depreciation and rising logistics costs on the back of higher fuel prices. A Maruti Suzuki official, however, said that the company has not yet decided on increasing prices.

Interestingly, all companies are offering discounts on nearly all models except the newest launches. Hyundai's most popular model i10 has discounts of about Rs 40,000 (which includes cash, loyalty bonus and freebies), while even Maruti Suzuki's popular Swift and Dzire models have discounts of around Rs 30,000. P Balendran, vice-president at GM India, said, All the products have certain schemes going on, which ranges to benefits of Rs 20,000 to Rs 65,000 depending on the model.

The trend of high discounting is part of a larger price war among carmakers that has been going on through most of this year to entice customers even as demand remains sluggish. In April-August FY14, sales of passenger vehicles (includes cars, utility vehicles and vans) fell 5.30% to 9.84 lakh units. Car sales were down 5.80% at 6.99 lakh units and utility vehicles volumes were down 3.11 at 2.01 lakh units.