Carmakers to hike prices again in January amid chip shortage, rising inflation

Several automakers in the country are planning to hike prices of vehicles from January 2022 in the wake of the ongoing chip shortage that has led to slow production despite high demand.

For over a year, automotive companies operating in India have been suffering losses due to supply disruptions and the semiconductor crisis. While the chip shortage situation has improved, most carmakers have a huge backlog due to higher demand and lower production.

In such a scenario, top vehicle manufacturer Maruti Suzuki India said on Thursday that it plans to hike prices of its models from next month to offset increased production costs. Several other car manufacturers like Tata Motors and Hyundai Motor India are also expected to hike prices to make up for losses due to higher input costs.

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A spokesperson for Tata Motors told the Business Standard newspaper that prices of commodities, raw materials and other input costs are still rising, adding that an appropriate price to partially offset cost seems inevitable in the near-to-short-term.

Not just domestic carmakers but foreign ones such as Marcedes-Benz India and Audi India also confirmed to the publication that they would hike prices of select models by up to 2 per cent and 3 per cent, respectively, from next month.

The primary reason behind the price hike is the semiconductor shortage that has car manufacturing and most carmakers have entered the last month of the calendar year with very low inventory due to prolonged supply disruptions.

The Business Standard report added that inventory across sales channels of car companies is estimated to be around 1.20 lakh units, which is much lower than 2.7-2.9 lakh units seen in December.

It is worth mentioning that the next hike in January will be the third one for Maruti Suzuki in the ongoing financial year, with prices of its vehicle offerings going up nearly 5 per cent. The company has not yet announced the exact price increase, but it could be substantial.

Not just the chip shortage but many other factors have contributed to higher input costs. For instance, material costs have jumped sharply since May 2020, including steel and copper. Cost of materials comprise nearly 75 per cent of an automaker’s operating cost structure.

The risk of rising inflation has shown no signs of cooling down during the current quarter and could be another reason why carmakers are going for another round of price hikes. In view of the current circumstances, it seems automakers have no choice but to pass on higher input costs to the end consumer.

Also Read | Global auto industry output expected to fall sharply amid acute chip shortage

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