Commercial vehicle makers gear up for price hikes
Commercial vehicle makers, which have put on hold a hike in product prices despite a sharp rise in input costs, are not in a position to Commercial vehicle hold out for long. They are keen on passing on the increase from October 1, buoyed by a sharp pick-up in sales.
According to industry executives, companies such as Tata Motors, Ashok Leyland and others are planning to raise prices of their commercial vehicles in the range of 1-3%, which in value terms would mean a jump of the order of Rs 9,000 to Rs 15,000 for a truck or a wagon. The last price hike by truck firms was in July, which ranged between 2% to 2.5%.
But this time round, these price increases would apply only to commercial vehicles and not passenger cars, the executives said, as auto makers are closely following the economic recovery. In August, sales of medium and heavy commercial vehicles hit the upper circuit, with volumes growing by 4% to 17,345 units, while sales of light commercial vehicles - which include the popular Ace and the Winger models - went up 32% to 23,279 units. For the April to August period, commercial vehicles sales fell 2.19% to 1.75 lakh units, while light commercial vehicles grew 22% to 1.02 lakh units and medium and heavy trucks dropped 23% to 72,341 units.
We had been postponing price hikes as sales of heavy and medium CV were under pressure,"said a senior executive of a large Mumbai-based commercial vehicle company. "Discounts, incentives and reduced interest rates were being doled out to push volumes,"he added, requesting not to be named as his company is still working out the exact quantum of a price increase.
Although Tata Motors did not comment for this story, the country's largest commercial vehicle maker by sales has been witnessing a sales rebound. "We see a kind of improvement in truck sales," vice-chairman Ravi Kant had said, adding that Tata Motors is initiating a series of measures to boost sales.
The increase in product prices has been triggered by a rise in the price of steel - the main component of a truck or a light commercial vehicle - which has gone up by almost 12% in the past three months through two price hikes. The current price of hot rolled coils, the base category of steel, is at Rs 31,000 per tonne.
But most commercial vehicle makers had been absorbing the price hikes as they were unsure about the response to any such move. The global liquidity meltdown added to their woes, which had led to a squeeze in demand for the auto sector. The industry was hence reluctant to pass on the burden earlier, as it feared sales could be dented further.
"This is a good time to raise prices," said an analyst from Mumbai-based brokerage. "CV companies need to improve profitability and with markets showing signs of a revival, this is the correct opportunity. Auto companies can expect an 8-10% growth in the next two months," he added.
The auto industry had also received a major boost from the government in the form of a stimulus package in December 2008 when the latter reduced excise duty from 16% to 8%. Also, as consumers can avail of a 50% depreciation benefit if they make purchases by September 30, these twin measures have prompted many to make purchases. Volumes have started looking up for light commercial vehicles and for the first time since August, medium and heavy commercial vehicle sales are also on the way up. Lack of finance and high interest rates had also led fleet operators to postpone purchases.
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