Car and bike prices likely to go up again

NEW DELHI: Car and bike prices may go up again, the second time in the last two months, if finance minister Pranab Mukherjee decides to increase excise duty by 2% in the Budget as the government looks to bring the duty back to pre-slowdown level.

Auto companies, reeling under heavy input costs, say they may not be able to absorb any hike in duty and additional burden would be passed on to the market. These include top companies like Maruti and Hero Honda, which witnessed 20% dip in quarterly profits on account of higher input costs. "We are concerned as there is already a lot of pressure due to higher input costs. If the excise duty goes up, we will have no option but to pass it on to the market as we are in no position to absorb any additional cost," Maruti Suzuki's CGM (sales & marketing) Shashank Srivastava told TOI. So, an entry-level car priced at around Rs 3 lakh will be dearer by Rs 6,000 if the excise goes up by 2%. Auto companies had in early January hiked prices by around 1.5%-2% to offset higher input costs.

Hero Honda said any additional hike is difficult to absorb. "All options are open. While rising commodity prices and inflation are key determinants, what happens in the Budget is very crucial," said Anil Dua, V-P (marketing and sales).

Ravi Sud, Hero Honda's CFO, said any hike would have a negative effect on demand. "We would like the concession to continue as it has helped in the growth of the industry. The two-wheeler sector is very sensitive to prices and any hike will pinch growth," he said.

The government had extended a total of 4% concession on the excise duty after recession hit global economies in late 2008 and early 2009. The benefits boosted demand to record levels and saw the Indian auto industry emerge among the fastest-growing markets globally. Interestingly, the growth was achieved even after the government withdrew the benefits partially by raising excise duty by 2% in the Budget last year. The buoyancy, say analysts, strengthens the government's case to up the duty again and bring the duty back to the pre-crisis level. However, the auto industry is arguing that sales are already under pressure on rising interest rates and fuel prices.

"If the excise duty goes up, it has to be passed on by the industry. There is no way the industry can absorb the burden," Pawan Goenka, who heads auto body Siam and is the president of Mahindra's automotive division, said. He said the effect of excise hike could be "severe" for the industry as it already reels under the negatives of higher interest rates and commodity prices. Jnaneswar Sen, marketing head of Honda Siel, said, "Yes, we will increase prices if the excise duty goes up."

He added that any such move would impact demand in the market.