IGI Logo

After battling the impact of Covid-19, Indias auto industry faces the threat of rising cost of acquisition, which might dampen consumer sentiments.

The global acceleration in economic rebound has spiked commodity and crude oil prices lately and pushed up core inflation as well as the overall acquisition cost.

Accordingly, the company will raise vehicle prices from April. Likewise, a rise in input costs had led the automobile manufacturer to raise prices in January.

In a conversation with IANS, Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India, described the phenomenon as a "real threat" to the buyers' sentiments.

"During the last fiscal, when the sales went down in the industry, one of the biggest reasons given was that the cost of acquisition of vehicles went up in forms of taxations, insurance and road tax. India's economy, unlike Japan and the European economies, is still price sensitive. Therefore, the rising cost of acquisition is a real threat," Srivastava said.

According to Srivastava, the earlier rise was on account of an increase in regulatory levies, but now the industry is grappling with high costs of steel, plastics and rare metals.

"Prices of all these commodities have gone up. Vehicle cost is going up dramatically," he said.

At present, 70 per cent of the overall vehicle cost is that of manufacturing materials. However, this phenomenon is being countered by easy availability of finance as well as low interest rates.

"On the other hand, the counter of liquidity is there. If the vehicle is worth purchasing now, then the consumers go for financing. But in balance, the cost of acquisition going up is a bigger threat," he said.

Last month, the automobile major's overall sales grew by 11.8 per cent on a year-on-year basis. The company sold 164,469 units in February, against 1,47,110 units sold in the corresponding month of 2020.

On a sequential basis, it had sold 160,752 units in January 2021.

Besides, Srivastava cited that an element of pent-up demand is still at play as the industry is still suffering from a fall of (-)12 per cent in sales during April-February FY21 on a YoY basis.

"Future demand depends on how the economy moves, there is a high correlation for auto sales and per capita GDP income growth," he said.

On the future fuel mix, he pointed out that emission norms will get more stringent in the days to come, which will eventually lead to hybridisation of powertrains.

"CNG is a good option for India. The fuel is cheap and the cost of acquisition for CNG vehicles is also low. In comparison, pure EVs cost 2.5 times more than a normal vehicle. Similar type of specification in a CNG-run vehicle comes to about Rs 75,000 more than a petrol variant of the same specs," Srivastava said.