'Price hike necessary to keep operations profitable'

Price hike necessary to keep operations profitable amid increase in commodity prices: Maruti Suzuki

The auto major is working on the quantum of the increase on each model

Corporate office of Maruti Suzuki India Limited is pictured in New Delhi. Credit: Reuters File Photo

The country's largest carmaker Maruti Suzuki India (MSI) is looking to hike vehicle prices once again from September as it aims to protect its profitability amid a steep increase in commodity prices, a senior company official said on Tuesday.

The auto major is working on the quantum of the increase on each model, trims as it aims to keep the hike minimal so that demand in the market is not impacted and it is also able to sustain its operations profitably.

The auto major has already hiked prices in January and April this year, so it would be its third increase this year.

At present, the company sells a range of models from entry-level hatchback Alto to S-CROSS, priced between Rs 2.99 lakh and Rs 12.39 (ex-showroom prices Delhi) lakh, respectively.

"Last year we were very conscious of the demand revival. Being the market leader, we are responsible for demand revival in the industry, so we did not take a price correction. In January this we hiked the prices by a minimal 1.4 per cent. We were expecting that the commodity prices would cool down eventually. In place of softening, the prices hardened forcing us to take another increase in April," MSI Senior Executive Director (Sales and Marketing) Shashank Srivastava told PTI.

Overall, the company has already taken a hike of around 3.5 per cent but even this is not enough to cover the rise in commodity prices and material cost, he added.

"Therefore, we are forced to take this another price hike in September. Although there has been little softening of prices, but it is not adequate," Srivastava noted.

He noted that hiking prices are always a last resort for the company as it aims to keep acquisition prices as low as possible for the customer.

"We first try to cut our internal costs like travel costs, marketing costs. We also take several such initiatives to increase efficiency and productivity. It is only when no other option is there that we decide to take the price hike," Srivastava said.

He noted that the increase in the cost of automobiles during the last few years has impacted the demand scenarios in the country.

"We need to have a fine balance where one one side affordability of products is necessary while at the same time we also need to look at the profitability of the company. We always want to keep the cost of acquisition as minimal as we know that first-time buyers are very price-sensitive," Srivastava added.

So, the company has been trying to absorb as much impact as possible and passing it on to the customer which is absolutely necessary, he said.

Srivastava said that steel prices have gone up from Rs 38 per kg last year to Rs 65 per kg in May-June this year.

Similarly, copper prices have doubled from $5,200 per tonne to $10,000 per tonne, he added.

In the case of precious metals, the overall demand has gone up in various global markets and in India as well because of the transition to shift to stricter emission norms.

"So the prices of these metals have increased dramatically. The price of Rhodium for example has increased from Rs 18,000 a gram in May 2020 to almost Rs 64,300 a gram last month. The problem is that it is not possible for all OEMs, including us to continue in this high commodity price regime without taking a price hike," Srivastava noted.

On Monday, the company had informed the bourses about taking a price increase from next month.

The price rise has been planned across models in September 2021, it had noted.

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