'Stimulus withdrawal will drive up car prices'

Leading carmakers are considering raising prices of their vehicles across the board, if the government withdraws the excise duty benefit in the coming Budget. The benefit was given as part of a stimulus package in December 2008, following the onset of the global economic meltdown. 

The move will push up prices by Rs 1,000-80,000, of vehicles ranging from entry-level motorcycles to luxury cars, to commercial vehicles.

Under the stimulus package for the automotive industry, the government had reduced excise duty to 8 percent from 12 percent for small cars, 20 percent from 24 percent for bigger cars like Maruti SX4 and Toyota Corolla, and 8 percent from 10 percent on two-wheelers.

"Our primary request is that the stimulus package should remain intact, which is important to sustain the growth. The industry is very constrained on price rise, but it will have to pass it on if there is any increase in excise duty," Mahindra&Mahindra President-automotive Pawan Goenka said. He warned that the withdrawal would adversely impact the high growth in sales the industry witnessed in the last four-five months. Passenger car sales grew 20 percent in the last five months compared to the same period last year.

Goenka is the president of the Society for Indian Automobile Manufacturers, which is pushing the government to continue with the excise concessions.

Auto companies say they are facing pressure of pricing due to increase in cost of commodities like steel, which has gone up by Rs 3,000-4,000 per tonne.

The industry feels the withdrawl will force small car makers to increase the price of their models by Rs 7,000-30,000. Price of mid-sized sedan cars can go up by Rs 12,000-50,000. For mobikes, the increase could be between Rs 1,000 and Rs 4,000, depending on the price of the model.

The mood is the same with other auto giants, too. Pawan Munjal, the managing director of the largest two-wheeler manufacturer in the country, Hero Honda, said, "We are requesting the government to continue with the package, otherwise the impact will be negative. Last time we had passed on the excise duty benefit to the customer, but an increase will be considered if it is withdrawn."

Automakers have taken up the matter with the heavy industries ministry complaining that rising input costs have dented their profit margins, which could only worsen with withdrawl of excise concessions forcing them to consider a price hike in March-April this year.

"We are under high price pressure on all fronts. Input prices have gone up substantially. We will try to keep the price rise on our models under control for as long as possible. If the stimulus is withdrawn, it will have a negative impact and prices of cars will go up," said Shinzo Nakanishi, managing director of Maruti Suzuki, India's largest carmaker. 

Tata Motors has already raised their prices in the range of 1-1.5 percent for heavy and some mini trucks in the commercial vehicle category.