Car prices set to rise in January – Should you buy one in December?

• India’s biggest automaker Maruti Suzuki has announced a price hike that will come into effect from January 2024.
• This comes amid high inventory levels with automakers and may be a measure to push year-end sales.
• Companies often offer high discounts during the year-end to attract customers and offload inventory.

India’s biggest automakers such as Maruti Suzuki and Tata Motors have announced a plan to increase prices of their vehicles from January 2024. Audi too has announced a price hike of up to 2% and other automakers are also expected to follow suit.

The trigger for the price hike is not a change in taxes, something which has often been a reason in the past. Maruti Suzuki has cited an “increase in cost pressure” due to the overall inflation and increased commodity prices as the reason.

In the pre-GST era, it was customary for the government to hike duties, so consumers would rush to buy cars, TVs and more, lest they turn expensive after the Budget. After GST has taken over the burden of most of such taxation, the Budget-date fear has been absent from the market.

"The company has planned to increase the prices of its cars in January, 2024 on account of increased cost pressure driven by overall inflation and increased commodity prices. While the company makes maximum efforts to reduce cost and offset the increase, it may have to pass on some increase to the market," Maruti Suzuki said in a filing with the stock exchange.

Rise in inventory

The wholesale of vehicles has been higher than retail sales for a few months now, meaning dealers are purchasing more vehicles than they are selling to customers. This has led to a buildup of vehicles with dealers, with inventory levels rising to 63-66 days in October, as per data from the Federation of Automobile Dealers Associations (FADA).

FADA had expressed its concerns about the inventory buildup, adding that without substantial intervention, the weight of unsold stock could lead to significant dealer distress

Price hike may be aimed at pushing customers to buy now

The upcoming price hike in January may be a way for the companies to offload their existing inventory, before the year ends. While Maruti has not announced the quantum of the price hike, even a small percentage hike is enough to spook customers into moving up their purchase.

Automakers offers discounts, accessories and more

It’s not just with price hikes that companies try to lure customers to purchases cars in the fag end of the year. Companies offer discounts on the car, car’s accessories or even offer some free accessories in the name of year-end offers.

In addition to this, companies also tie-up with insurance companies to offer better rates or better coverage. Companies also push for discounted extended warranties to push sales.

Experts warn about making year-end purchases

Initially, it may seem like a good idea to pull the trigger on a car purchase with a price hike looming and car makers offering attractive discounts, but there are some other aspects that you need to consider before purchasing a car in December.

The first thing that you need to consider is the manufacturing date. Cars purchased in December will have their manufacturing date as 2023, even though you have purchased it at the end of the year. This may not seem like a big deal when you are thinking about discounts and other offers, but will have a huge impact on your car’s resale value. Your car is already outdated once the year ends.

“You may feel that you are getting an amazing deal but always keep in mind that the same model will be outdated from next month. Also, your car gets depreciated by 10-12% every year, so technically one month difference will cost you 10% in depreciation,” said Ananth Ladha, founder, Invest Aaj for Kal, a financial planning firm.

When compared to a car from January 2024, the resale value of a car from December 2023 may be 10% less, which is quite high for a month’s difference.

“Whenever you get the car delivered, it is marked as a car of that year, say 2023. If you got a car in December and you attempt to resale it, you lose out on a good one year of use as the car will be earmarked to 2023, but you have got it at the tail-end of the year,” said Adhil Shetty, chief executive officer, BankBazaar.

However, this does not mean that purchasing a car at the end of the year is not worth considering.

“However, if you are getting very good benefits, it may offset the drop in resale value that can be the case with your vehicle,” Shetty added.

So, you need to consider the value of the discounts being offered and compare it to the value that you are losing out by purchasing a car at the end of the year. Then, you need to identify whether it is worth doing so or not.

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