[Jeroen]

Originally Posted by Alfa_Romeo1

I am not saying that sales prices should come down, what my point is that say for Honda City Petrol vehicle when you are not changing much, features are same, engine is same and at a particular time when you launch a so called facelift with redesigned bumper and new headlamps and taillamps, why should you increase the price of a stable product by a lakh?

Because they will try and get to a price point where the volume and unit price gives them the best return. Again, I don’t see the correlation between the unit sales price and the unit cost price.

Over priced is in the eye of the beholder. If you believe that car isn’t worth that sort of money that is fine. But if your criteria is margin or probably more correct perceived margin, you are not going to be able to buy much in life

Jeroen

[aadya]

Originally Posted by Alfa_Romeo1

I am not saying that sales prices should come down, what my point is that say for Honda City Petrol vehicle when you are not changing much, features are same, engine is same and at a particular time when you launch a so called facelift with redesigned bumper and new headlamps and taillamps, why should you increase the price of a stable product by a lakh?

That is why we should leave the price correction to market forces and competition. Just wait and watch for the sales to drive sanity into the manufacturers. We start getting market correction in the way of discounts offered.
Cars are overpriced when we see them as a necessity but not when we buy them for pleasure.
When considering the break even points we keep haggling about the successful models but what happens to the investment made on unsuccessful models? The same mouths which talk about the Honda's price ran away towards vernas and ciaz when 4th gen Honda city was such a wonderful vehicle at that price point.

[vb-saan]

When I see the price of a few new launches, I feel the cars in India are overpriced. Then on second thought, it appears that the sentiment on overpriced is relation to its immediate competitor; for example, the Yaris is tagged as overpriced because the City costs a few thousands less. If it was the other way with the City a couple of thousands more, former would have been an ultimate VFM model.

As a market, I feel the prices are quite ok; it may appear expensive compared to some matured markets like USA, and can appear extremely cheap when compared to say, Singapore. But do we get what we pay for – I would say no. In many mid-segment cars, I pay close to 10 lakhs and still may not get many safety features, for that I need to upgrade to the top variant which can cost 50% more than the base variant. Many of our mass market cars are like average cakes with beautiful icing. A good cake with minimum fancy icing is not even given as a choice.

[Arjun Reddy]

It is the GST and the road tax that contribute to the car looking overpriced in India. GST at around 50% and then the road tax of around 20%( in Bangalore). This 20% of road tax is charged on the Ex showroom price which also includes the GST. This is tax in tax.
Also not sure if the manufacturers are actually passing on the input GST credit that they get on various vendor payments.

[civic-sense]

There has been a recent spurt in car prices and there is no denying that fact. As somebody pointed out, a Swift ZXi had costed 5L on road in 2005, but now costs ~10L on road. Much water has flown under the bridge between 2005 and 2018.

Similarly a lot has changed between the previous century and today. Let me list a few:

1) Labour: Since liberalisation, not only has unemployment come down, but quality labour has become scarce. There is fierce competition between sectors for quality labour, and this has driven up labour costs. Heck, the automotive sector even have to compete with the IT sector for good engineers.

2) Taxes: Excise has been moving upward, and except for the 4m car scenario, there has been no let up. We got a respite for a few months via GST, but then cess brought it back to the high tax levels.

3) Road tax: When we bought a Maruti back in the last century, road tax was never a percentage of the price, but a fixed amount for the class the car belonged to. And we could pay annually. Later at some point, they made it life time tax, paid at sale, and thus got added to the on road cost. And what started off as a 2-3% tax on the cost of the car now stands up to 20% of the cost of the vehicle.

4) Insurance: This is a more recent phenomenon, that I see that insurance premiums have been on the rise. Even third party premiums have gone up by about 3-5 times. Add to that, the govt has started levying service tax (now GST) on insurance premiums too.

4) Input costs: Steel, plastics, electronics... Everything has gone up.

5) Features: A couple of decades ago, a power steering was something seen only in high end cars. Even power windows. It is natural that when these features get trickled down to lower segments, prices would increase.

I really feel that the major contributor towards the OTR prices of a car are taxes. We are paying humongous amounts of tax while buying a car compared to what we used to pay a couple of decades ago. Whether it is right or wrong is NOT the topic of debate here, but the reality is - taxes make cars overpriced.

[Aroy]

I agree that it is taxes and inflation (as well as Rupee-Dollar rate) that has increased the car prices. It is no use saying that the car is fully manufactured in India - a major portion is imported, be it raw materials or components.

Just compare the salaries, they have grown more than ten times in the last twenty years, so why not car prices.

[Redline6800]

Originally Posted by NiInJa

In relative terms, I can say that price of cars has increased, but I am not sure if they are overpriced.

A Honda Brio S version that we bought in September 2013 for 5.35L costs 6.15L today, for almost the same feature list. Does that make the car overpriced ? Yes, for both freshers as well as experienced people, As we feel the car offers the same value that it did just 4 years back and a hike of more than 50,000 INR ???

To be fair, the Brio on sale now has a far better dashboard

But all manufacturers are guilty of increasing prices - though discounts mean that the prices sometimes are close to what they were years ago.

Honda is offering discounts of 19,000 on the Brio, 40,000 on old Amaze (D+P), 38,000-70,000 on Jazz, 32,000 on City and 60,000 on BR-V.

So market forces and new models force the manufacturers to correct their prices.

We must also not forget to thank the Govt for the GST hike - which increased car prices.

As salaries and purchasing power increases - so does the OEMs propensity to add more features and increase prices ( or remove features and maintain the price as Hyundai frequently does )

In the 90's and early 2000's - the car was driven straight from the showroom to the car accessory shop for a 10-15,000 (or more) rupee spend for remote locking, music system, tint, seat covers etc. A lot of these we now get standard on most car models.

[sagaranjos]

A price is the amount of money a person is willing to pay for a good or service.
And the price is also the point where demand and supply meet.

So if a car (or any other product) is selling at a price point, then it is not overpriced. It is exactly the right price people are ready to pay for the value they perceive.
If the consumer found a mismatch between the quoted price and perceived value, the product simply wouldn't sell.

Secondly, a car, especially in India, is seen as a status symbol more than a means to an end. And therefore a higher price, supposedly gives you more 'status'. And the car companies seem to be using it to their advantage pretty well.

[shashanka]

Originally Posted by sagaranjos

A price is the amount of money a person is willing to pay for a good or service.
And the price is also the point where demand and supply meet.

So if a car (or any other product) is selling at a price point, then it is not overpriced. It is exactly the right price people are ready to pay for the value they perceive.
If the consumer found a mismatch between the quoted price and perceived value, the product simply wouldn't sell.

Secondly, a car, especially in India, is seen as a status symbol more than a means to an end. And therefore a higher price, supposedly gives you more 'status'. And the car companies seem to be using it to their advantage pretty well.

"If the consumer found a mismatch....." - well that happens often enough! A glance at the monthly sales figures establishes this home-truth. Most of the VW products on sale here are sales duds, despite all the marketing gymnastics. There are other reasons too, of course, but silly prices are potent reason for the failures.

".....is seen more as a status symbol than a means to an end." Once again I beg to differ - this may have been true 15-29 years ago, but no longer. With the exploding 2nd-hand market, prices have plummeted, and a good number of people have gained experience in car ownership. And this underscores the fact a car today is a great means to an end.

As the old adage goes, " You can fool some of the people all the time......"

[Hayek]

Originally Posted by Jeroen

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.

Great point made here. I find people who crib about “over priced” cars very often don’t know what they are talking about, or have fallen for the money illusion - viz they have forgotten about inflation.

I bought my first car (a second hand Zen) for ₹2.5 lakhs in 1998. Adjusted for inflation, that is ₹8.3 lakhs Btw, a new Zen cost ₹ 4 lakhs ex showroom then, or about ₹13 lakhs in today’s money. This was for a flimsy car with no safety features bar seat belts, a 50 BHP carburettor engine, power nothing and no space. You get a Honda City Petrol AT for that much today.

In 2004,I paid ₹8.6 lakhs on the road for a Honda City Gxi MT with 77 BHP power and power windows, but no air bags, ABS, or any such features. That is about ₹21.3 l in today’s money and in a world where corporate registration cost 7% vs 22% today.

The ex show room price of my Skoda Superb in 2010 was merely 15% below the ex showroom price of my BMW X3 in inflation adjusted terms (of course, because that was a personal registration, while this was a corporate one, the difference in on the road prices was much more).

The fact is that in the two decades plus that I have been working, car prices have fallen sharply in inflation adjusted terms. As for salaries for well qualified professionals, the median salary in my batch in an IIM was under ₹ 2lakhs per annum or ₹ 8 lakhs in inflation adjusted terms. A quick Google search suggests that median salaries are over ₹ 20 lakhs today.

In short, car prices have risen by much less than inflation (even ignoring the better features and safety of modern cars) while salaries for well educated Indians have risen much faster than inflation. It may make more sense to talk of under priced cars rather than over priced ones.

Originally Posted by Jeroen

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.

I think the reason we crib so much about taxes is that they are collected in an unfair manner, particularly at the upper end of the income distribution. There are only 50,000 Indians who declare an income of more than ₹ 1 cr -which is a joke when you compare that with the no of million dollar homes or luxury cars costing over ₹30 lakhs or jewellery sales etc. Most rich Indian businessmen and self employed professionals evade taxes - which irks the average salaried Joe who gets tax deducted at source no end. But that is no reason to crib about indirect taxes on cars - in fact high indirect taxes help reduce the benefit rich tax evaders get by not paying income tax. I would of course be happy if there were a harsher crackdown on all the cars fraudulently registered in CH or CG or JH that ply on Bombay streets. People don’t mind taxes, as long as they are levied fairly.

[kbishwa]

Guys, overwhelmed with the kind of knowledge shared here. However, I dare to disagree with few of them.

1. I think the objective of the post was to know if a particular car value chain (raw-material procurement, manufacturing, sales including dealers' margin) is exploiting Indian customers, and which are those "apple" cars, and pre-Jio era "Airtel" services? And which one is giving the maximum bang on the money spent?

2. In any system (or for any country) tax & levies may be excluded from the evaluation for such kind of study/comparison because it is a pass-through (almost, until you play smarter like less than 4 meters, which is again a pass through cost!)

3. Further cross-country comparison may be avoided, considering Indian market as a boundary condition. Someone may also start talking purchasing power parity!

4. Also, cross-segment discussion may sometimes be misleading. Because philosophy applied in one segment may not be true for just another segment, until it is overlapping.This is also amusing that sometimes (or many times?) the customers themselves are confused/bewildered (or made so by the marketing gimmicks!)

5. I believe, segment-wise, our automobile industry is a good example of a market with almost perfect competition (Economist may pitch in). The whole value chain is highly stretched to extract the optimum (should I say maximum?) economics for the buyers' penny spent. Refreshed XUV500, with higher power and better interiors priced equal (even lesser) than the outgoing models!!

And the customers are the real king. (Understanding that there is a price for aesthetics, beauty, design, brand; in addition to the very tangible BHP produced and real state available; as lot is spent to create and maintain them.) If they (we) don't get the right value proposition they will teach a hard "Chevrolet/Fiat" lesson.

So, boss, at a point of time, when one needs to make a decision to buy an automobile, be assured, your choice of car is suitably priced. The need is to remain informed (by keeping your eyes & ears open, and sticking to team-bhp, so that you may not miss an offer or bargain opportunity!) Don't buy in haste (avoid Impulse Purchase, even for a soap!)

Remember, even bargaining avenue is more or less defined/known for an established product from a reputed outlet!

Yes, we are fortunate to be in a mature automobile market, production numbers only after 3 other countries (China, Japan and Germany, and even ahead of the USA)! And no "Jio" era for cars on cards

[Aaron:)]

Just a little perspective -

I bought my Honda City S M/T in 2009 for about 9 lakh on road. If you adjust inflation, the 9 lakh comes up to approx 15 lakh. I think you can get a Honda City (top-1 variant) for that much today.

[ashlil]

It just occurred to me that the Japanese and Korean cars are expensive, while the German cars are well priced! Consider the following:

The Mercedes A class has an ex-showroom price of 30 lakhs. This, despite 60% import duty (assuming A class is CKD) and 43% GST+Cess. If I am wrong in my assumption about CKD, do let me know. I got the tax rates from this:
http://http://www.siamindia.com/cpag...8&pgidtrail=85

Now if the ex-showroom price is 30 lakhs, then ex-factory+import duty is 17.1 lakhs (30 * 0.57=17.1). Therefore ex-factory price is 6.84 lakhs (17.1*0.4 = 6.84). If this car were to be localized, then the ex-showroom price will be 6.84*1.43 = 9.78 lakhs. This is not considering cheaper labour/material costs in India. (For the sake of simplicity, I have included dealer margin and all that into ex-factory)

Would you buy a Creta, if the A class was available for 9.78 lakhs?

Of course, I maybe completely wrong in my assumption. But, if the above calculation is on the right track then the Japanese and Korean cars do seem expensive.

[LordSharan]

Originally Posted by ashlil

Would you buy a Creta, if the A class was available for 9.78 lakhs

Something doesn't add up here. If this is the case for A Class pricing, what stops mercedes to set up a plant here in India and sell these cars to mass market? Exclusivity or brand image? Naah, Mercs are way too common on roads now. Plus the top line at this price point will become so attractive that decision would be solely driven by that factor alone.

I can also stick out my neck and say, that it would also take care of the capital requirement needed to set up the factory pretty quick.

I suppose, similar price drops will be experienced for C, E and S class as well. What stops mercedes to manufacture completely in India? At least for lower end models?

[Aroy]

Originally Posted by ashlil

It just occurred to me that the Japanese and Korean cars are expensive, while the German cars are well priced! Consider the following:

The Mercedes A class has an ex-showroom price of 30 lakhs. This, despite 60% import duty (assuming A class is CKD) and 43% GST+Cess. If I am wrong in my assumption about CKD, do let me know. I got the tax rates from this:
http://http://www.siamindia.com/cpag...8&pgidtrail=85

Now if the ex-showroom price is 30 lakhs, then ex-factory+import duty is 17.1 lakhs (30 * 0.57=17.1). Therefore ex-factory price is 6.84 lakhs (17.1*0.4 = 6.84). If this car were to be localized, then the ex-showroom price will be 6.84*1.43 = 9.78 lakhs. This is not considering cheaper labour/material costs in India. (For the sake of simplicity, I have included dealer margin and all that into ex-factory)

Would you buy a Creta, if the A class was available for 9.78 lakhs?

Of course, I maybe completely wrong in my assumption. But, if the above calculation is on the right track then the Japanese and Korean cars do seem expensive.

Actually you are supposed to calculate step by step, starting from time of import.
. If the price is 1, then after import duty it is 1.6.
. Now add the GST etc of 43% = 1.6 x 1.43 = 2.288.
That is the factor by which the car price is increased.
At 30L ex-showroom, you get 13.11 as the ex Germany price.

What you have not factored in, is that GST is applicable to all, including Creta. Without GST a car of 18L ex-showroom will be 12.59L (18/1.43)

So we are talking of 13L each if there was no import duty.