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Old 21st June 2010, 14:51   #1
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Default Inflation and car prices

Just a simple question : Are current prices of cars & bikes right considering current inflation in last few years? (i am talking in general, not to any specific car / bike) Do you think they are costly? are do you think they are cheap?

This question came to my mind very recently. When i go out in traffic i get irritated by the number of cars & bikes increasing day by day. I really wonder how this happened in last few years. So i thought over it in little deep. Then i found out that inflation in India is really very high in last few years. Find below some examples.

Price few years back / Now
Petrol - Rs 20 per lit / Rs 52 per lit
Food Items - Aprox 200 - 300 % rise (minimum)
Commodities like gold - Rs 4000 per 10 gms / 18000 per 10 gms
Property prices - Approx 200 - 400 % rise in big cities

Good thing which is happening is Salaries or average income of the common man has also increased drastically. People who used to earn like 10 K per month are now earning 30 -50 K per month.

But when i consider the prices of the automobiles, i am really surprised. There are not much increase here at all. Find below examples:

in 1998 we purchased new M800, it was around 2.05 L. Now also its at the same price. That time we purchased Bajaj Caliber 100 cc bike for 45 K, now also similar bike you can get at same price or less also. Santro top end was around 4 lacs 10 years back, same now. Same case with other cars like Ikon, Accent etc. Some are available at lower prices as well with latest engines, better mileage, technology etc. Thats the reason i guess we can see automobile industry is growing so fast. Normal people are also able to afford these bikes / cars easily comparatively. Also loan options available are too many with ease.

I guess this is a good as well as bad sign. Good because lots of people are able to afford good bikes & cars they want. Bad because it is increasing pollution, traffic, number of accidents etc. Unfortunately we dont have infrastructure available to handle such a heavy traffic in India.

Auto industry is going to increase more & more in coming years. Dont know that is good or bad, i guess its more bad only. We are consuming loads of fuel available on earth. DO you guys think government should do something for this? Like making people use pubic transport, increasing automobile prices etc? I am confused
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Old 21st June 2010, 14:55   #2
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Good thought and your explanation seems valid to me. At a time when everything is getting expensive day by day, automobiles have held on (to an extent) and that is good news.
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Old 21st June 2010, 15:11   #3
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In fact its -ve inflation, when it comes to automobiles (just compare the added features of the Santro, or Maruti, then and now, though prices remain same). In western countries it is lack of public transportation that drives car sales. Outside city limits you are on your own. Whereas, in India it is an issue of status. People do not want to be seen in public transport, unless you have no other go. What to expect from the political executive!? Occasionally (read once in 5 years) they travel in a electric train with all media to send out a message.
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Old 21st June 2010, 17:03   #4
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To some extent same is the case with white consumer goods.
I guess the catch lies in the general build quality and QA of these products.

Regards,
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Old 21st June 2010, 17:21   #5
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Correct Anniket. The answer to all your questions lie in technological advancemet.

Any technology based product is bound to see fall in prices as new technology comes in and companies find cheaper ways to mass manufacture it.
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Old 21st June 2010, 18:04   #6
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After investments made to produce the products (design, manufacturing setup) are recovered, it doesn't make sense to simply increase prices only for profit, and there is also pretty decent competition to boot.
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Old 21st June 2010, 18:51   #7
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Quote:
Originally Posted by prateek99 View Post

Any technology based product is bound to see fall in prices as new technology comes in and companies find cheaper ways to mass manufacture it.
Completely agree. This is exactly what I feel.

Aniket, I agree in general with your observation. I am just curious about what year you are referring to when you said petrol was Rs. 20/Liter? I don't seem to recall petrol price being that low
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Old 21st June 2010, 18:53   #8
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Also, cars and bikes are not cheap in India compared to their identical models manufactured abroad. Take the case of the Fortuner, the Corolla or the Accord for example.
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Old 21st June 2010, 18:57   #9
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Yes. Almost all consumer products either have decreased in price or maintained it with the improvements in technology. Think about the phone, TV, Fridge, etc. They almost cost same price. Take the IT industry, gadgets etc they are also having save fate.

But main thing that is raising is conventional energy and food items. Because of their demand and our inability to produce more for the demand.

Just my thought.
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Old 21st June 2010, 19:07   #10
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This is a very interesting thought indeed aniketi

As you rightly pointed out, we find the cost of most items like food & commodoties go up constantly. These fall under the criteria of "raw material".

Automobiles, electronic goods etc consist of raw material + development cost. So we find that the cost of automobiles remaining almost constant because the more you sell the lesser the development cost will be for the item. The raw material cost in this segment too has been rising sharply. But this increase is more or less equalled by the decrease in the development cost and the net effect very often is a decrease in the cost of the item.

So basically the steel price in a car has been going up while the development cost (R&D put into designing the car etc) is actually reducing. Afterall a M800 would have recovered the development cost ages back since its been on the run for more than 2 decades. So the price variation now mainly occurs depending on the steel/labour/etc cost.

I feel we should put in more efforts to finding alternate sources of energy than to decreasing the number of vehicles on the roads. Afterall who doesn't enjoy a little bit of luxury?
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Old 21st June 2010, 19:12   #11
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Quote:
Originally Posted by Dr.AD View Post
I am just curious about what year you are referring to when you said petrol was Rs. 20/Liter? I don't seem to recall petrol price being that low
The petrol price was once Rs.1 (in the 70's). And sometime during that period it had gone up to Rs. 2 directly! That's like Rs.50 we pay today to Rs.100 tomorrow!!!
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Old 21st June 2010, 21:42   #12
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This is actually a very interesting thread.

Lets look at this way:
The Maruti 800, Fiesta and a few other cars have remained at the same price level or even lower due to the depreciation benefits the company has gotten for its machinery.
However, since we were contemplating buying a car, I went to look at the options, and I feel that the car prices have actually risen!
Look at the Verna. A new A/T Verna actually retails for 11.5L OTR for a company regd. car in Mumbai! That is simply ridiculous! Also, prices of new cars are rising in general. It is only those cars which have been in production for a long time and are witnessing a decline in sales, that have similar pricing to when launched.
However, in general there is a steep rise in the prices of cars.

Look at the old Corolla. Was Rs. 13L OTR in Mumbai a few years back. Now we are looking at around 16L for a company regd. car.

Similarly, when we bought a new, well equipped mid-sizer in 2005, most of the cars like the NHC, Fiesta, Verna were under 10L. Now if one were to buy a car in the same segment, he would have to pay nearly 12-13L for these cars!
All prices are a rough estimate, OTR, and company registered in Mumbai.

Heck, the Punto E-Pack, MJD, was quoted for 8L for a new piece!! And the Linea prices were touching nearly 10L! And these are our so called VFM cars.

Last edited by lamborghini : 21st June 2010 at 21:43.
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Old 21st June 2010, 21:53   #13
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Good thought process:
Few inputs from my side -
* Those which you mentioned as same price levels are those which are pretty old ones and given a state of 0 inflation they would have gone to negative values.
* For the current cars, I guess going by the value, of amount spent by average middle class per its monthly income then the same rate would be applicable now also.
* The Indian govt came up with differential rates for the small car offlate only. (I guess)
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Old 21st June 2010, 21:59   #14
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Automobiles were obscenely costly to start with. And they still are compared to countries like the US.

That way, look at the iPod Nano. The second gen was 2GB, only music for $149.
Today, its 5th gen, audio, video, photos, radio, sound rec etc etc with 8GB for $149.
So, basically, technology is getting cheaper.
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Old 22nd June 2010, 00:21   #15
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Technology is getting cheaper, yes. But the cost savings are not being passed down to the end user. So we end up paying the same price, if not higher for certain commodities. Cars being one of them.
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