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Automakers , airlines reject FM plea to drop prices

November 19, 2008 02:57 IST

The response of at least two out of the five sectors to which Finance Minister P Chidambaram appealed to cut product prices in order to revive demand has not been encouraging at all. While the automobile industry outrightly said no to Chidambaram's plea, the aviation sector largely remained non-committal.

Automotive manufacturers clarified that high input and operational costs, a sluggish last quarter and an equally disappointing festive season had dented their operating profit. So, any reduction in vehicle prices was not possible at the moment.

Companies such as Mahindra & Mahindra, Bajaj Auto [Get Quote], Hero Honda and Hyundai Motors ruled out any price cut for now, citing the above reasons.

Pawan Goenka, President (Automotive Sector), Mahindra & Mahindra, said, "We are yet to recover costs from the surge in raw material prices during April-September this year. We will not cut prices for now, but if the FM withdraws the additional excise duty, which was levied post-budget, then we will definitely pass on the benefit to the customer."

Car and two-wheeler manufacturing companies are of the opinion that depleting finance availability and reluctance of banks to reduce lending rates have dented sales more than marginal hikes in vehicle prices during the year.

"Availability of finance has been a major cause of concern. Banks are not ready to lend to car buyers and this has impacted sales. There is no scope for cutting prices at the moment. If the excise duty is reduced, then we will surely pass on the benefit to our customers," said Arvind Saxena, Senior Vice President (Marketing and Sales), Hyundai Motors India.

Similarly, two biggest motorcycle manufacturers in the country--Hero Honda and Bajaj Auto--have also ruled out any price cuts.

Pawan Munjal, MD and CEO, Hero Honda, said, "We do share the FM's concern and desire to stimulate growth in the two-wheeler industry.The two-wheeler industry continues to reel from high interest rates and an overall credit squeeze in the market. The withdrawal of financing from key markets by many lending institutions has aggravated the situation. While prices of a few commodities have softened recently, their impact is still to be felt.The government needs to address these issues on priority. Measures such as lowering interest rates and making retail finance available would fuel growth rather than a short-term measure like price cut. Reduction of prices in this situation does not seem to be a viable option."

Rahul Bajaj, Chairman, Bajaj Auto, said there was no scope for any price reduction in the two-wheeler industry in the near future. "The two-wheeler industry is not like other industries where the margin is 30-35 per cent. This industry has a margin of about 4-5 per cent only," he said. When contacted, a Tata Motors [Get Quote] spokesperson said the company does not provide any future guidance on its pricing strategy.

Chidambaram had reduced excise duty on cars and two-wheelers from 16 per cent to 12 per cent during the last budget, following which all auto-makers had agreed to pass on the benefit to the customer. However, instead of keeping their word, they hiked vehicle prices twice this year.

Unlike the auto-makers, most of the airlines have been non-committal about a reduction in air fare following the FM's appeal. Probably, Kingfisher is the only airline that said a price reduction was not possible at this point in time.

Air India refused to comment on the issue and SpiceJet said that they were still reviewing the situation.

"It is very easy for the FM to tell the airlines to cut prices. But what one has to understand is that in the last six-to-eight months when fuel prices roared, we accumulated tremendous amount of arrears that we still have to pay.

Also, the savings that we have made out of the benefits will be only visible from next month. We might evaluate a lowering of prices only after that," said Hitesh Patel, Executive Vice President, Kingfisher Airlines.

When contacted, a SpiceJet spokesperson said, "We will have to review our pricing. But, we have not yet taken a call on it." Airlines, especially full service carriers, have not passed on to the customer the benefit of ATF price cuts in the last three months.

Meanwhile, in its review of the aviation sector, a committee headed by Prime Minister Manmohan Singh today expressed concern over the falling passenger traffic and asked the Civil Aviation Ministry to take up the possibility of lowering fares with airlines.

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