The drop in value of the India Rupee in the market has the potential to strike alarm bells for car buyers. Car prices in India are determined by not only local costs but also by the price of parts and components that are imported by carmakers. With several major carmakers importing parts, the manufacturing cost of cars are set to increase further.
Carmakers are under pressure to increase prices as profit margins have taken hit due to increased costs. While major carmakers such as Maruti Suzuki, Tata Motors and Hyundai procure most of their parts locally, there are still some components that are purchased in the international market. Further, carmakers will face the brunt of the damage from CBU (Completely Built Units ) that are imported.
While local carmakers procure some important parts from abroad, international carmakers build only some of their models in India. They prefer to import some of their high end models. The cost of procuring top end models will be higher on these carmakers.
Carmakers are yet to make an announcement on this regard as the believe a price hike will severely impact sales that are already slowing down in some segments. However, carmakers cannot continue to take in losses and will be forced to pass on the increased costs to the consumer.
The increased excise duties and taxes effective from this year's budget have already burnt a hole in to car buyers' pockets. The falling Rupee will now pose another challenge. Carmakers can be hesitant to pass on the entire hike to consumers in the fear of losing sales. But one cannot rule out a car price hike in the coming days if the value of the Indian Rupee continues to be low.
Premium carmakers such as Audi, BMW, Mercedes-Benz, Jaguar and Land Rover import most of their premium models. Even Hyundai, Toyota and Honda import their top end models. The possible price hike due to the fall in the Indian Rupee will affect these cars more than the ones that are built using locally procured parts.
Sources say the car price hike can be made anytime this month depending on how the Rupee performs.