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Indian Government have ordered Car Companies to reduce prices of cars

Indian Carmakers are under pressure by the Indian Government to cancel all price hikes announced over the last couple of months, after the recent 4% excise duty cut on all types of vehicles. The government has warned auto companies that it will not consider any stimulus package for the industry in the future unless they reduced the prices of popular brands, an official in the ministry of heavy industry said on condition of anonymity.

Over the last 2-3 months, market leader Maruti Suzuki India (MSI), Hyundai Motor India (HMI), General Motors and Toyota Kirloskar Motors have increased the prices of top brands like Swift, A-Star, Swift Dzire, Santro, i10, Accent, Spark, Optra and Carolla by anywhere between Rs 3,000 and Rs 50,000.

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The hike in rates went against the spirit of the stimulus package announced in December last to bail out the automobile industry, which was forced to halt production as inventories piled up on a sudden fall in demand since July 2008, the official said.

The finance ministry has written to the ministry of heavy industry and auto manufacturers’ association Society of Indian Automobile Makers (Siam), asking them to justify the price increases.

Carmakers justified the price hikes, saying they had absorbed higher input costs when the demand was low. “Now that the demand has stabilised, we are passing on some of the high input costs to consumers,’’ Siam director general Dilip Chenoy said in a reply to the ministry.

A Maruti spokesman said prices had to be increased marginally as commodity prices increased and the company’s profits slipped 32% in the first nine months. The weakening rupee too pushed up input costs, he said, adding, “We have increased prices of select models only.”

But the government refuses to buy this argument. “The contention of high input prices is not valid as it would have impacted all vehicles, and not just the bestsellers. Increasing prices just a month after duty cuts is not justified,’’ a finance ministry official said on condition of anonymity. The input costs have impacted two-wheelers, commercial vehicles and three wheelers and their prices have not increased, the official added.

The Indian car industry was on a cruise mode for three years, growing at an annual rate of 12%, before it hit a snag in July 2008 when demand
started dwindling as auto loan interest rates hit new highs. In the following five months, with the global economic crisis spreading its wing into India, auto sales went from bad to worse, forcing companies to halt production on a huge pile of inventories. During July-December 2008, the industry saw its sales slip 7% compared to the year-earlier period.

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This was when that the government announced a stimulus package that included a 4% excise cut on all kinds of vehicles — small cars, sedans, SUV, buses, trucks, three wheelers and two wheelers. This led to steep price-cuts across segments. Prices of small cars like Alto and Santo fell by up to Rs 12,000, while mid-segment cars like Honda City, Maruti Sx4 and Toyota Corolla became cheaper by Rs 25,000. The price-cut was more than a lakh for top-end vehicles like BMW 3Series, Toyota Prado and Mitsubishi Montero.

All this led to a revival in the market and demand stabilised by January. This was when companies started increasing prices of their top-selling vehicles. After cutting prices in December, Maruti increased prices of the A-Star by Rs 10,000, Swift Petrol by Rs 5,000 and its diesel model by Rs 6,000. The price of Swift Dzire was hiked by Rs 7,000. The company kept prices of its lesser selling cars M800, Omni, WagonR, Zen Estilo, Gypsy, Versa and Grand Vitara unchanged.

Hyundai increased prices of its flagship car Santro by Rs 3,601-5,163, i10 hatchback by Rs 3,974-7,637 and the Accent sedan by Rs 14,636. Toyota increased the prices of Corolla sedan by Rs 50,000, while GM raised prices of Spark and Optra by Rs 3,000 and Rs 10,000, respectively.

Premium car makers Honda Siel Cars, BMW India and Mercedes Benz India have all announced plans to increase prices in April. The companies refused to comment on any possible roll back in prices. The Maruti spokesperson said the company did not receive any communication from the government, while an email inquiry to Hyundai went unanswered.

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via : economic times

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