Cheap Re: Imported cars are costlier but prices won't rise

For customers looking to buy luxury cars and SUVs, this could be a good time. Car companies selling high-end sedans and SUVs (sports utility vehicles) imported as completely built-up units (CBUs) are absorbing an increase in import costs and deferring price hikes due to sluggish demand.

If the costs were passed on, the prices could go up by as much as a quarter.

The costs of imported vehicles have increased 25-30 per cent because of the depreciation of the rupee. That has made CBUs more expensive to import but companies are putting off price hikes and taking a hit on their margins.

Debashis Mitra, director (sales & marketing), Mercedes Benz India Ltd (MBIL) says, "The rupee has fallen by 20-25 per cent over the last one year to 72 per euro from the earlier 58 per euro.

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"This in itself has raised import costs by a quarter." For the cheapest imported ML Class Mercedes Benz luxury SUV priced around Rs 57 lakh (Rs 5.7 million), for instance, the impact due to the rupee slide stands as high as Rs 15 lakh (Rs 1.5 million).

Imported cars such as SLS AMG, E Class Coupe and E Class Cabriolet constitute 15 per cent of the German car maker's portfolio.

The company sells 12 products tagged between Rs 30 lakh (Rs 3 million) and Rs 2.9 crore (Rs 29 million).

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"We passed on the hike in excise and customs duties to customers and raised prices 15-20 per cent post the Budget. However, the market is so bearish at the moment that we cannot raise prices immediately," says Mitra.

For other companies with CBUs, such as Maruti Suzuki, Honda Siel and General Motors, too, the sliding rupee has become a cause for concern.

"The rupee has fallen both against the dollar and the yen. Some manufacturers have stocks with them, which has helped offset the impact of forex fluctuations.

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"But raising prices is difficult, considering the market conditions," says Shashank Srivastava, chief general manager (marketing), Maruti Suzuki India Ltd.

Maruti Suzuki imports premium sedan Kizashi, priced upwards of Rs 16.50 lakh, from Japan.

Sales of the vehicle have tanked by about 66 per cent to 89 units between January and May this year. General Motors' Chevrolet Captiva has seen sales fall  to 147 units in the same period -- a decline of over 80 per cent over last year.

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For luxury car makers such as Mercedes and BMW, which recorded scorching growth rates of over 80 per cent in 2010, projections of 10 per cent growth in sales volumes over last year  have become challenging.

A spokesperson for BMW declined to share specific information about how the depreciating rupee had impacted operations in India but said the company had decided against a change in pricing.

"CBU operations of all manufacturers have been badly hit due to the depreciating rupee. In fact, for all cars that have an import content of more than 30 per cent, the bottom lines have come under pressure.

"But, demand is so slow that even when we launched a new variant of a sedan with added features last week, we decided not to increase the price," says P Balendran, vice-president (corporate affairs), General Motors India.