Team-BHP > The Indian Car Scene


Reply
 
Thread Tools Search this Thread
Old 26th April 2018, 11:08   #16
BHPian
 
King_pin09's Avatar
 
Join Date: Jan 2016
Location: Mumbai
Posts: 459
Thanked: 628 Times
Infractions: 0/1 (5)
Default re: Overpriced cars : Myth or reality?

Well, it is impossible to guess the actual cost of production of a car unit (unless one has direct access to the production planning team of the manufacturer) so that it can be compared to the price at which it retails at the dealership and visualize the real pricing strategy of a manufacturer.

Manufacturers keep their cards closed as what pricing strategy has been deployed for a particular model, which usually depends on the anticipated sale numbers. It is customary to assume that a high volume car maker applies thin margins (and realize the intended profits by virtue of volume) where as a low volume player applies high margins (so as to achieve the intended profits by virtue of cost differential). However these are mere products of hypothetical imaginations and are not substantiated. Time and again certain manufacturers have surprised the market with sudden revisions in an attempt to lure the buyers while retaining profits. Do anyone recall Ford announcing hefty discount of INR hundred thousand on the Ecosport, following the launch of Brezza? http://www.team-bhp.com/forum/indian...-12-lakhs.html

Similarly, Dzire, Swift, Wagon R, etc., cannot be termed as low margin products merely because they sell in high volumes. It also cannot be denied that manufacturers usually make fortunes from the after sales service set up as well.

In the automotive industry, pricing is the prerogative of the manufacturer alone and it not restricted by any second party element. Direct factors such as cost of inputs, consumables, taxes, duties, royalties, overheads, profits, etc form the primary considerations where as indirect factors such as recovery of losses from other non-performing product/ products, product development, corporate gains, branding, advertisements, etc are also factored in. Thus a manufacturer creates a larger space to play with at his own will depending on the manner in which a particular product performs vis-a-vis the market dynamics.


Now, coming to the present question of whether certain cars of overpriced or not, I can only say that all cars in the market are clearly overpriced when we see as what they actually are. It is only that we are familiarized/ accustomed to a certain price band for a particular category of cars based on the precedents (set by competitors) and find a car reasonable if it falls within such band and unreasonable if it falls outside.

Last edited by King_pin09 : 26th April 2018 at 11:27.
King_pin09 is offline  
Old 26th April 2018, 11:43   #17
BHPian
 
sanstorm's Avatar
 
Join Date: Apr 2008
Location: Pune
Posts: 158
Thanked: 71 Times
Default re: Overpriced cars : Myth or reality?

The bottom-line is price is market driven , however I do not see the companies are selling cars at exorbitantly in India. My view -

1 - companies are still tanking money on most models , compensating with a premium charged on few. See related thread:

http://www.team-bhp.com/forum/indian...y-filings.html

2 - other industries profit margins are way higher (IT, ITES, pharma ), so no point singling out companies with profit margin in single digits.

3 - Prices are ok, however services cost is day light robbery. Oouchhh !!

4 - features provided are plentiful, thanks to commodity technology, awareness, and definitely competition (remember 90's times : no left side and no body colored mirrors , no music system and no AC in basic variants -compare LX then LX now).
sanstorm is offline  
Old 26th April 2018, 12:11   #18
Distinguished - BHPian
 
Join Date: Oct 2012
Location: Delhi
Posts: 6,208
Thanked: 27,501 Times
Default re: Overpriced cars : Myth or reality?

There are two different ways of looking at this. From the consumer point of view and from the manufacturer point of view.

As long as a car sells at the volumes and price point the manufacturer wants, it is not overpriced as far as they are concerned. No matter what consumers think or say. As long as enough punters buy the car at the price point the manufacturer envisages, from their point of view the car is certainly not overpriced.

From a consumer point of view it is likely to be a personal preference on what you find relevant. I am always a bit puzzled why people relate something being overpriced in relation to what it might cost to produce. That would suggest those individuals would love buying cars that are sold at a loss apparently?

I own just about any Apple device you can think of, Macbook Pro, several iphones, ipods, ipads, iwatch. I am told to believe that it cost like $150 to produce a Macbook. I paid Euro 4000 (about $4000) for it. Does that make it overpriced? Not in my mind. I love my Macbook!

Personally I do not care what a product, car or otherwise, cost to manufacture. It has to meet my thought around whether I want to part with that sort of money. So for me it is about value for money.

So at the end it is usually down to whether I like a particular car and whether I think it provides value for money. That latter being highly subjective anyway.

Many human behaviour studies have found that humans are pretty poor at taking rational/factual decisions. Making decisions around substantial financials outlays, we tend to be even worse. Our mind tends to be made up very quickly and then we spend an extrodinary amount of time thinking up the rational and other arguments to validate and substantiate our decisions.

So I shelled out the $ 4000 for my Macbook and when my wife found out I had my story ready why actually this is the buy of the century. (her brandnew laptop cost a staggering $450). The Mac will last forever, free software updates, no need for antivirus software, best colour management for Photoshop etc. etc. None of this was even remotely going through my head as I was standing in the Apple shop getting this thing. I just wanted it! And I am fortunate enough to be able to afford such thing now and then. And I genuinly do enjoy my Macbook every time I use it!

So we think and talk about this in a rational matter, but truth be told, this in itself is largely a myth.

Mind you, it can be very enjoyable talking about these things of course! Untill your partner finds out what you really paid for the new PC/watch/camera/car.

Make sure you have a good story ready guys!

Jeroen

Last edited by Jeroen : 26th April 2018 at 12:13.
Jeroen is online now   (20) Thanks
Old 26th April 2018, 12:13   #19
Distinguished - BHPian
 
hemanth.anand's Avatar
 
Join Date: Jan 2010
Location: Bengaluru
Posts: 3,014
Thanked: 11,354 Times
Default re: Overpriced cars : Myth or reality?

Personally I feel that all the cars on offer currently are definitely overpriced. More than the pricing itself (which is subjective and perspective IMO), what is more worrying for me is the rate at which the prices are increasing. I'll take my own example.

Over an year ago, in 2016, I bought my Polo GT TSI for 11 Lakhs. Now the same Polo GT TSI is 12 lakhs...1 Lakh for essentially one next size of wheel and next version of HU!!!

Last edited by hemanth.anand : 26th April 2018 at 12:21.
hemanth.anand is offline   (3) Thanks
Old 26th April 2018, 12:19   #20
Team-BHP Support
 
Chetan_Rao's Avatar
 
Join Date: Jul 2010
Location: Bangalore
Posts: 3,682
Thanked: 12,224 Times
Default re: Overpriced cars : Myth or reality?

I don't take issue with the price tags, it's ultimately whatever a buyer is willing to pay.

What I do take issue with, is the product differentiation. Except direct import CBUs and CKD kits assembled here, we get inferior products up and down the range. Safety kits, trim levels, powertrains, often the whole underlying platform, you name it and it's probably compromised, then justified with some corporate jargon. A basic rear wipe & wash is reserved for top-end variants as a 'premium feature'.

Made for India 'cost efficient' models are all the rage, while the customer pays ever-increasing purchase prices.

If we're expected to pay world class prices, why should we settle for third class products?

Last edited by Chetan_Rao : 26th April 2018 at 12:25.
Chetan_Rao is offline   (4) Thanks
Old 26th April 2018, 13:29   #21
BHPian
 
Join Date: Nov 2007
Location: Bangalore
Posts: 865
Thanked: 1,185 Times
Default re: Overpriced cars : Myth or reality?

Name:  ProjectManagementTriangle.png
Views: 3054
Size:  46.0 KB

This should solve this debate to a large extent.

Companies just don't up and start designing and building cars. In the end, the balance sheet matters and whatever they do, it's based on a price point. The house of quality systems and associated system engineering principles allow for such choices to be made to arrive at the final configuration. While each customer may desire something over another, in the end, its a trade-off.
Mad Max is offline   (1) Thanks
Old 26th April 2018, 13:53   #22
Distinguished - BHPian
 
Join Date: Oct 2012
Location: Delhi
Posts: 6,208
Thanked: 27,501 Times
Default

Quote:
Originally Posted by Mad Max View Post

This should solve this debate to a large extent.

.

No it doesn't. That is a bit of a very classic way of looking at things, Project Management has moved on way pass this model I would think?

Typical market leaders will often be able to produce at the lowest cost and still achieve high quality. Sell at high market prices and take in high margins. E.g Apple, VW,

A big problem with such models is that low or high quality is in the eye of the beholder anyway.

In Many Project Management theories quality is often defined as fit for purpose. I.e. to what extend does it solve the original need or demand. Although in that context quality can be very well defined and measured it is not absolute. What I would look for in quality in a car is not the same as the next guy.

Jeroen
Jeroen is online now   (4) Thanks
Old 26th April 2018, 13:58   #23
BANNED
 
Join Date: Jan 2014
Location: mum,lko,kolkata
Posts: 1,044
Thanked: 1,193 Times
Default re: Overpriced cars : Myth or reality?

Quote:
Originally Posted by chiranjitp View Post
......... I am waiting for a "JIO" moment to come in the Indian car industry, which would force the rest of the manufacturers to price their cars competitively.
Amen to that - now let us speculate which mfr. would be altruistic enough to take the step!


Quote:
Originally Posted by kiku007 View Post
Let me add a new twist.
1. Tax sops? Automakers have got land at throw away prices and Tax holidays for years together.
2. Labour cost compared to the rest of the world? Low. Don't even talk about the crushing healthcare costs they have abroad.
3. Investment on R&D specific for India? Meh.
4. Investment on meeting emission standards? No problem. Let's blame the fuel quality and lack of public awareness.
5. Costs associated with environmental protection and management? Well I don't know. But check how much GM was fined in India for the Tavera engine pollution fraud.
6. Warranty costs? Lol. Sell third year warranty for a price while rest of the world gets 7 years standard in many cases.
And cars cost more in India? 😀
I can't imagine how much more cars would cost if tax sops are gone and a couple of other factors (mentioned above) start becoming relevant for India.
I agree with all the above - a real pity that all the arm-chair pontificating in this thread will cause much merriment in the SIAM conclaves - and then they will just get on with the job of tightening the screws further!
shashanka is offline   (3) Thanks
Old 26th April 2018, 14:19   #24
Distinguished - BHPian
 
Join Date: Aug 2014
Location: Delhi-NCR
Posts: 2,836
Thanked: 31,160 Times
Default re: Overpriced cars : Myth or reality?

Taxes and features are why cars cost more. If we settle for a basic car that can transport 4 and some luggage at 90 kpmh, meet certain solid safety norms [safety cage, 6 airbags, crumple zone], range of 500 kms, basic seat adjustment and air conditioning then it could come at a rather affordable price. But then we want auto this and auto that, music, USB, blue tooth, et al. Nothing wrong with that. but well then all that comes at a cost. All of us who drove cars 25 or 30 or 35 years ago managed very well without 8-point seat adjustment, or a car radio or push button window roll up and yet thoroughly enjoyed cross country travel. But when we want features then at some point there is a price to pay. A top end mid-segment car today has more features and luxury items than a Mercedes Benz from as recently as 1995. I think we complain too much. Any way just one old man's mutterings.

Quote:
Originally Posted by Jeroen View Post
There are two different ways of looking at this. From the consumer point of view and from the manufacturer point of view.

As long as a car sells at the volumes and price point the manufacturer wants, it is not overpriced as far as they are concerned.
....I am always a bit puzzled why people relate something being overpriced in relation to what it might cost to produce. That would suggest those individuals would love buying cars that are sold at a loss apparently?
....It has to meet my thought around whether I want to part with that sort of money. So for me it is about value for money.

....So at the end it is usually down to whether I like a particular car and whether I think it provides value for money. That latter being highly subjective anyway.
The most mature post on this thread without a doubt. Thank you for putting down these points. Too many believe the OEM should sell at cost plus 5%!!- not realizing that most would rather shut down. And then we have had this long spell of e-commerce companies burning hard equity capital to offer discounts to customers merely to show volumes & GMV growth to their Private Equity investors. Meaningless volumes of goods sold at a loss. As a consequence some young consumers believe that goods should be sold at cost or at an eternal discount.

Quote:
So I shelled out the $ 4000 for my Macbook and when my wife found out I had my story ready why actually this is the buy of the century. (her brandnew laptop cost a staggering $450).
In our house it is the other way around. My wife buys a new apple thingamajig every year and my Dell laptop from 2009 is soldiering on.

Last edited by V.Narayan : 26th April 2018 at 14:31.
V.Narayan is offline   (10) Thanks
Old 26th April 2018, 16:53   #25
BHPian
 
civic-sense's Avatar
 
Join Date: Dec 2009
Location: Bangalore
Posts: 879
Thanked: 1,491 Times
Default re: Overpriced cars : Myth or reality?

For a car that costs 10L to manufacture (ex-factory), the govt charges:

28% as GST = 2.8L
20% as Cess = 2L

Which brings the ex showroom price to 14.8L

Now add 20% of ex-showroom as road tax = 3L

Total 7.8L in taxes, bringing up the price to 17.8L.

Now you know why cars in our country are "overpriced".
civic-sense is offline   (14) Thanks
Old 26th April 2018, 17:32   #26
BHPian
 
drsingh's Avatar
 
Join Date: Mar 2011
Location: Ludhiana
Posts: 752
Thanked: 619 Times
Default

Quote:
Originally Posted by civic-sense
For a car that costs 10L to manufacture (ex-factory), the govt charges:
=========
Now you know why cars in our country are "overpriced".
If you want to take this further, also consider the salaried guy buying a 20 lakh car is probably already in the 30% tax bracket .

Last edited by Jaggu : 26th April 2018 at 17:54. Reason: Trimming the Quotes. Thanks.
drsingh is offline   (7) Thanks
Old 26th April 2018, 19:57   #27
BHPian
 
Join Date: Jun 2014
Location: Pune
Posts: 54
Thanked: 66 Times
Default re: Overpriced cars : Myth or reality?

Quote:
Originally Posted by drsingh View Post
If you want to take this further, also consider the salaried guy buying a 20 lakh car is probably already in the 30% tax bracket .
and then add up the interest paid in emis. Gets worse when the bank charges for part payments. Overall cost of ownership would also increase with the increasing fuel prices (currently at an all time high)
oli.ferns is offline  
Old 26th April 2018, 21:25   #28
Distinguished - BHPian
 
Join Date: Oct 2012
Location: Delhi
Posts: 6,208
Thanked: 27,501 Times
Default Overpriced Cars : Myth or reality ?

Quote:
Originally Posted by civic-sense View Post
For a car that costs 10L to manufacture (ex-factory), the govt charges:



28% as GST = 2.8L

20% as Cess = 2L



Which brings the ex showroom price to 14.8L



Now add 20% of ex-showroom as road tax = 3L



Total 7.8L in taxes, bringing up the price to 17.8L.



Now you know why cars in our country are "overpriced".


Quote:
Originally Posted by drsingh View Post
If you want to take this further, also consider the salaried guy buying a 20 lakh car is probably already in the 30% tax bracket .

Various countries have similar stiff tax levies on cars ( e.g. Sweden, Finland, the Netherlands) and we could only dream about paying only 30% income tax. I am currently in the close to 60% income tax bracket.

Taxes (VAT and others) on cars are low in the USA and Germany and various Gulf states for instance.

That is just ground realities-in whatever country you live. I don't think you can call it over priced. You cant get anything cheaper in country, all these taxations are leveling the playing field equally for everybody.

You can't just pick and choose. Like I will have German car tax, USA income tax and Saudi property tax and Mediterranean climate. You get the full package with all the pro's and con's of each respective country. You don't like it, migrate!

I can harp along how my wife's Ford Fiesta would be 40% cheaper in the USA and I would pay less than half the income tax in the USA as well. But I would have to content with the likes of Trump and some other dubious characters as well. So really making those comparisons is simply not constructive, nor will it lead to anything.

If cheap cars and low income tax is all you require move to the USA. Or Dubai whatever. And except the good and the bad and stop wincing!

Jeroen

Last edited by Jeroen : 26th April 2018 at 21:27.
Jeroen is online now   (17) Thanks
Old 26th April 2018, 22:44   #29
BHPian
 
Join Date: Feb 2014
Location: chandigarh
Posts: 180
Thanked: 121 Times
Default

Quote:
Originally Posted by Jeroen View Post
Various countries have similar stiff tax levies on cars ( e.g. Sweden, Finland, the Netherlands) and we could only dream about paying only 30% income tax. I am currently in the close to 60% income tax bracket.

Taxes (VAT and others) on cars are low in the USA and Germany and various Gulf states for instance.

That is just ground realities-in whatever country you live. I don't think you can call it over priced. You cant get anything cheaper in country, all these taxations are leveling the playing field equally for everybody.

You can't just pick and choose. Like I will have German car tax, USA income tax and Saudi property tax and Mediterranean climate. You get the full package with all the pro's and con's of each respective country. You don't like it, migrate!

I can harp along how my wife's Ford Fiesta would be 40% cheaper in the USA and I would pay less than half the income tax in the USA as well. But I would have to content with the likes of Trump and some other dubious characters as well. So really making those comparisons is simply not constructive, nor will it lead to anything.

If cheap cars and low income tax is all you require move to the USA. Or Dubai whatever. And except the good and the bad and stop wincing!

Jeroen
Your post appears to imply that people should lump whatever is unfair because it is part of the package. By that yardstick there shall never be a change in anything for the better. Moreover this advise of migrating to some other country if you don't like a particular thing over here smacks of a lot of similarity with utterly fake nationalist propaganda being pushed in the country.
nik hill is offline   (3) Thanks
Old 26th April 2018, 22:50   #30
BHPian
 
Join Date: May 2014
Location: Bangalore
Posts: 67
Thanked: 42 Times
Default re: Overpriced cars : Myth or reality?

Quote:
Originally Posted by peus017 View Post

Similarly in the automobile world lot of these factor influence pricing e.g. Innova which was 7Lakhs in 2005 is costing appx.18Lakhs now, Considering the inevitable "INFLATION" factor 7Lakhs in 2005 is actually translated to ₹ 1,632,540.78 [2017]
Number of Years: 12
Average Yearly Inflation Rate : 7.35 %
Culmulative rate of inflation : 133.22 %
Technology advancements throughout the years, automation and scale of production bring down the cost of production every year.
So this inflation adjusted price might not be the right benchmark for deciding whether cars are overpriced or not.

Last edited by arit.mondal : 26th April 2018 at 23:15.
arit.mondal is offline  
Reply

Most Viewed
Thread Tools Search this Thread
Search this Thread:

Advanced Search

Copyright 2000 - 2021, Team-BHP.com
Proudly powered by E2E Networks