Pawan Goenka, MD, Mahindra & Mahindra, expects demand for vehicles next fiscal to be in the 6-8 per cent range despite a triple whammy in costs.
Passenger cars and trucks will become more expensive in 2017-18 thanks to the combined effect of costs incurred on emission and safety fitments as well as the impact of rising commodity prices.
In the case of Bharat Stage IV emission norms which kick in from April, Goenka believes price hikes could be in the range of ₹15,000-20,000 for diesel passenger vehicles going up to ₹1 lakh for trucks. As for the new safety norms effective from October, the price impact could be in the ₹20,000-25,000 bandwidth. “And then you have commodity prices which are on the rise especially during the last three months and could impact pricing to the tune of 2-4 per cent,” says Goenka. When all this is added up, it will result in a steeper price tag.
“Consumers will have to be prepared that from December 1, 2017, vehicles will cost more than those today,” he says. The Goods and Services Tax is scheduled to be in place from July but this is not expected to make any significant change in vehicle prices. Automakers were hoping that GST rates would be around 18 per cent which would have compensated the increases in BS IV and safety fitments. At 28 per cent, this is not likely to happen.
Goenka reiterates that the high cost cycle is inevitable considering that each of these changes is mandatory and customers will just have to pay more for their vehicles. “BS IV is a must and is, in fact, three years too late. You have to build in safety and crash norms in the vehicle and, if anything, these have probably taken a little longer in coming than what they should have,’ he says.
Yet, the Mahindra MD is hopeful that demand will not be hit as a result of this cost spiral. The reasoning is that vehicle growth has remained subdued for the last three years and some pent up demand explosion is inevitable especially with interest rates at reasonable levels too. “Assuming that the macroeconomic scenarios are favourable, we should see average to average plus growth of 6-8 per cent,” he says. Another vital determinant would also be timely rains. Despite the imminent “sticker shock”, Goenka reasons that vehicle prices have not really gone up much in the last three years and customers could still queue up in showrooms.
Product line-up From M&M’s point of view, products launched in FY-16 had a slow start but are now “reasonably in firing mode”. Sales of the compact SUV duo, TUV300 and KUV100, are picking up, while the workhorses, Bolero, Scorpio and XUV500, are doing well too. On the anvil is a new launch next year along with some refreshes.
“All in all, we have a strong product line-up. That is not to undermine the fact that the whole SUV segment has become very competitive,” says Goenka.