Two news reports in the Times of India today best explain the difficult situation the car makers are in. One report says some of the car companies may be forced to increase product prices due to the free fall in the rupee against the dollar, while another one says they are cutting production in order to factor in a crippling demand slowdown.
The rupee on Friday hit a 12-month low against the dollar. With the free fall in the rupee, car makers' input costs are rising and they may have to increase the prices, the ToI report said today.
Many car companies have already raised the prices by Rs 2,000-Rs 10,000. Those which have not affected a price increase or have not hiked enough will have to increase the prices again, the report said.
Vinay Piparsania, head of marketing, Ford India, has been quoted as saying in the report that the company will resort to price increase if the slide in the rupee persists.
Echoing his view is a top Toyota Kirloskar official, who also said the company may have to increase the prices.
As per the report, many companies had factored in the inflation and increased the prices in March-April. But the slide in the rupee has come as a rude shock for them.
And this comes at a time when car companies are cutting production. Maruti Suzuki, the market leader, cut the production for a full day on 7 June.
As per the ToI report, apart from Maruti Suzuki, Tata Motors, Ford, General Motors and Volkswagen have also been cutting production.
Clearly, the companies are caught between a rock and a hard place. "They are no longer looking for big margins; it's more about ensuring survival till the slowdown is over," Maruti Suzuki's RC Bhargawa recently told the Business Standard in an interview.
However, on the rupee front the worst is yet to come. There are experts who expect the currency to hit 60 against the dollar. This may not be far fetched given the RBI's statement that it will intervene in the forex market only to curb extreme volatility and not to support the rupee.
Given the situation, the companies may have to take a tough call and increase the prices once again.