Increasing vehicle price and high fuel costs. Double whammy for vehicle buyers

The fuel cost in the last few months has increased massively for the vehicle owners. It is also denting the consumer sentiment hurting auto sales. The ₹100 a litre barrier breaching petrol and diesel prices in several cities across India certainly denting sales of passenger vehicles and two-wheelers. Along with that, the recent price hikes by auto manufacturers are coming as salt to the wound.

With this double whammy, the entire auto industry is facing a dampened customer mood and subsequently a sluggish recovery in demand and sales as well. The ongoing Covid-19 pandemic and local lockdowns are other factors that are hurting the sector.

Incessant hike in petrol and diesel prices

Petrol prices breached ₹100 per litre in several Indian cities over the past few weeks. This resulted in inflation and increased pressure on household budgets. Both motorists and non-motorists have been impacted hard by the surging fuel price.

While the vehicle owners are finding it difficult to keep a check on their fuel costs. The potential vehicle buyers are either postponing the decision or cancelling it. The anxiety about an unstable employment scenario, a forthcoming third wave of the pandemic is fuelling this worry.

Besides the higher crude oil price, the high rate of tax imposed by central and state governments too are contributing significantly to fuel price hike. The automakers along with several other stakeholders too have appealed to the government to reduce excise duty and freight charges on fuel. The government however denied reducing the tax amounts of fuels.

Increasing vehicle prices

Sharp rise in raw material costs, semiconductor crisis, supply chain disruption have forced the automakers to increase the price of vehicles multiple times in 2021. From Maruti Suzuki to Mercedes-Benz, from Hero MotoCorp to Honda two-wheelers - the majority of the automakers present in India announced price hikes over the last few months.

In June 2021 alone, India's largest carmaker Maruti Suzuki has announced a price hike of its entire range, effective from July. The automaker cited the reason behind this decision as to the higher production cost due to raw material price hike. This is the third time, Maruti Suzuki has revised its prices in 2021.

The first price hike came in January this year when Maruti Suzuki announced an upward revision of up to ₹34,000. In April again it announced a price hike for select models.

Similarly, India's largest two-wheeler manufacturer Hero MotoCorp this week announced a price hike of up to ₹3,000 across the entire range. The increased pricing of the Hero motorcycles and scooters will be effective from July 1. Earlier in March this year too Hero MotoCorp increased the price of its two-wheelers.

Among other automakers, Tata Motors increased its passenger vehicle prices from May. Mahindra & Mahindra hiked the prices of its cars by up to ₹49,000 in May this year. In April too, M&M increased the prices of vehicles citing higher raw material costs. French auto major Renault hiked its car prices thrice this year; in January, April and June. Hyundai and Mercedes-Benz too increased the prices of their vehicles more than once in 2021.

What's the impact?

The incessant hike in fuel prices and successive price hike of the vehicles are resulting in a double whammy for the vehicle buyers and vehicle owners. While the vehicle owners are facing significantly increased cost of ownership, potential vehicle buyers are facing a dilemma.

Talking about this, Puneet Gupta, Associate Director, Automotive Sales Forecasting, South Asia Region at IHS Markit said that the Indian consumer is very price sensitive and this higher total cost of ownership (TCO) can make customers delay their purchase. "With higher fuel cost the inflation will move northwards and in turn, will force RBI to increase the repo rates. Thus there will be a double sword impact and this may act as a deterrent to the demand for cars in coming months."

Clearly, this situation is impacting the car and two-wheeler sales and subsequently delaying the recovery in the auto industry that is already reeling under pressure due to the pandemic induced situation.