Date:29/03/2008 URL: http://www.thehindubusinessline.com/2008/03/29/stories/2008032950300200.htm

Back Two-wheeler makers unable to pass on full duty cut benefit to consumers

Steep rise in steel prices, input costs cited as reasons

Priyanka Vyas

New Delhi, March 28 Even as the Budget announced a 4 per cent reduction in excise duty, the steep rise in steel prices may not allow companies to pass on the complete benefit to the customers.

Bajaj Auto Ltd, for instance, has reduced prices in the range of Rs 500 to Rs 2,000 on various models. However, it has not offered any reduction on its top-end bikes, including Pulsar 200, Pulsar 220 and Avenger.

In the case of Platina, which is being produced in an excise free zone, Bajaj offers the highest price cut against some of the models which are eligible for price cut after the Budget announcement. A Bajaj official said that in certain cases the company has given more benefit to the customers than what the excise duty cut permits and for some models, it has been lower.

City dealers cite the company’s strategy as a cushion against the rise in steel prices. They say that due to rise in input costs companies are unable to offer the customer the benefit entitled to them.

“Motorcycles sales have declined. There is pressure on margins,” explained Bajaj Vice-President, Business Development, Mr S. Ravikumar.

Honda Motorcycles and Scooters India said that it had extended the benefits of price cuts across all models barring its scooter Eterno for which it had not offered benefits completely.

“We have passed on the benefit to the customers across all models except for our scooter Eterno in which we wanted to increase the price. However, manufacturers are finding it difficult to pass on the full benefit of excise duty cut due to the input costs,” said Mr N.K. Rattan, Assistant GM Sales and Marketing, Honda Motorcycles and Scooters India.

He said that the company was monitoring the steel prices which had started climbing upwards this month. “Some part of the price increase in the input costs is incorporated. But we are monitoring it. If it is not sustainable, then we will have to revisit the pricing in the coming months.”

Auto industry analysts say that if the trend of rising input costs continues, then it may offset the impact of price benefit given to consumers due to the Budget announcement.

“Unlike four-wheelers, margins are thin in two-wheelers. While Hero Honda has made a uniform price cut of 3-3.2 per cent, Bajaj and TVS have adopted flexible pricing strategy in anticipation of the discounts to be offered during the forthcoming marriage season,” said an auto analyst from B&K Securities India.