Covid-19 break messes up automakers BS6 pricing strategy

By Lijee PhilipBattered by the Covid-19 outbreak and the lockdown following an economic slowdown might force auto makers to price their BS6 offering closer to the BS4 vehicles they replaced to attract buyers once the lockdown is lifted. The outbreak has worsened the auto sectors troubles in March when they […]

By Lijee PhilipBattered by the Covid-19 outbreak and the lockdown following an economic slowdown might force auto makers to price their BS6 offering closer to the BS4 vehicles they replaced to attract buyers once the lockdown is lifted. The outbreak has worsened the auto sectors troubles in March when they were in the midst of transitioning to stricter emission norms from April 1, industry experts said.

Companies like Toyota, which started selling BS6 models January onwards decided not to pass on the entire BS6 price increase to customers as buying confidence was already low. For a diesel vehicle which entailed a price hike of Rs 1.5 lakh for a BS6 model, manufacturers have increased cost only up to Rs 80,000 for customers and absorbed the remaining cost of Rs 70,000 themselves. Clearly every manufacturer will have to realign BS6 pricing if the market asks for it.

“We need to accept reality and respond to the market either through price cuts or discounts. We know this is not sustainable”, said a senior official of a car company.

With leaders vacating the small diesel engine space, at least temporarily, Hyundai had the opportunity to play in this segment and managed to price the diesel powered vehicles very competitively.

India’s largest utility vehicle maker Mahindra did the same. Dealers told ET that some of the company’s fast selling products, including the XUV300 in its new avatar, would be priced very competitively, as close to the BS4 prices as possible.

Mahindra & Mahindra and Tata Motor chose not to comment for this story.

Dealers of Mahindra, Tata Motors and Hero ET spoke to said the companies will have to offer financial incentives on BS6 models to push sales once the lockdown is lifted. Though they said the bigger worries are dealer, supplier and vendor viability issues that needed to be taken care off too.

“Till March end we were clearing BS4 models, now from this month, it’s BS6. We are sure some form of incentives will have to be given,” said a Tata Motors dealer.

The country’s largest car maker introduced BS6 way back in April 2019 with a price increase in the range of Rs 8000-11000. “OEMs are skating on thin nice and may not have head room to reduce prices. But what can be done is offering financial incentives to dealers and consumers”, said Shashank Srivastava, Executive Director, M&S, Maruti Suzuki.

A lot of investments have already been done towards conversion and meeting other regulatory requirements. Therefore the option of price reduction does not exist, said Srivastava.

“Two wheelers and entry level cars are a price sensitive segment. Manufacturers will take a call depending on the situation and the way demand goes. At the moment, we don’t know the possible trigger”, said an official of a two wheeler company. Clearly, cash incentives and discounts will have to be offered to prop demand, the official said.

Experts said the price increase on BS6 models and the overall cost of ownership could be a dampener for the already struggling auto industry.

“Customers are wary of the higher price and will look out for deals on BS6 vehicles. Already, there is a perception of high price differential in the mind of customers,” says Nikunj Sanghi, a leading Mumbai-based dealer.

Due to the evolving situation of Covid-19 and slowdown in business due to lower footfalls or shut-down in last few weeks of March, OEMs and dealers might find themselves in a tight spot, says Avik Chattopadhyay, an independent auto consultant.

The automotive industry was already facing a variety of headwinds through the year and pressures on their earnings due to shrinking revenues as many face the risk of mounting losses due to impairments arising of obsolete inventory after BS6 norms came into effect on April1, added Chattopadhyay.

Source Article

Lois C. Ferrara

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