Automobile market leaders—Maruti Suzuki in passenger cars and Tata Motors in commercial vehicles—are raising prices from April by 4 percent and 2 percent, respectively. The standard reasons of increasing input costs and higher operational expenses have been trotted out. However, industry pundits are surprised at the timing considering the poor sales and lack of consumer support at the current prices. Car sales grew just 5 percent in volume in calendar 2024, the slowest in 4 years. It would have been worse had it not been for a spike in the popularity of sports utility vehicles that made up 54 percent of the total sales.
This February, while car production went up by a marginal 2 percent, the Federation of Automobile Dealers Associations reported a fall of 7 percent in retail sales. Passenger cars fared worse than the average, with sales falling 10 percent to 3,03,398 units; and even the sales of the common man’s two-wheelers dropped 6 percent. Commercial vehicle and tractor sales dropped 9 percent and 1.5 percent. Electric vehicles, that had a robust 2024 with a 27 percent growth, registered a 1.9 percent year-on-year decline in February and a 18.2 percent fall from the previous month to 1.39 lakh units.
Dealers report no supply chain issues; nor have there been any major disruptions or rate increases by original equipment manufacturers to justify the price hikes now. Therefore, the move perplexingly seems self-defeating. Perhaps the business plan of these companies for a period of tepid demand is to simply raise the topline. But this could push the brakes farther down on consumer spends. As it is, car prices are quite high. A decent sedan can hardly be had for less than `15-20 lakh, while a good-sized SUV will be in the `40-lakh range. The sharp fall in two-wheeler sales to 13.53 lakh units this February shows mass resistance to the current prices. As other markets have demonstrated, instead of pushing growth through price rises, car companies should launch a wider range of models at a higher frequency to attract more customers. Another way to bring these companies to heel is to improve the standard and variety of public transportation in and between cities.