Re fall: Your dream supercar now costs an arm and a leg.

CHENNAI : A combination of higher duty and a sharply depreciating rupee has led to a steep rise in the price of imported cars and motorcycles and a knock on effect on the demand for these pricey vehicles.

Although most companies use currency hedging to work in short-term fluctuations , the rupee's slide has been so sharp even the hedging will not be able to maintain prices for long. Top auto industry executives say if the current trend continues, there will be another round of price hikes in Motown which took an across the board increase between March and May.

Said Eberhard Kern, MD & CEO, Mercedes-Benz India: "The rupee has lost 12% in the last month which has already pinched kit imports. So far, our completely built imports (CBU) are covered by currency hedging. But once the hedging period is over, we will be hit if the rupee keeps sliding. So if the rupee stays weak there will be pressure on price."

The impact of the rupee slide has had a domino effect across the automotive industry helping exports of fully built cars and components but pushing up the price of imports of both vehicles and parts. In some cases it has had a positive impact - like tyres for example - where the rupee depreciation combined with the anti-dumping duty on import of truck and bus tyres has insulated domestic manufacturers from price cuts warranted by a 30% drop in the global price of natural rubber. In other cases the double whammy has hit demand and triggered a prospect of price hikes.

Said Pavan Shetty, head of operations, Lamborghini India : "There has been a lot of volatility in the supercar market following the increase in duty. Although this niche segmentis far better resistant to the slowdown, we still need to weigh the impact of the duty hike and currency situation."

The problem, say auto industry experts, is that the earlier price hikes did not factor in the rupee slide. "Most foreign brands went through a price increase which slowed down demand. But the mark up did not cover the rupee fluctuation and all importers - of cars, components or kits - will need another round of price hikes soon," said Kern.

Source : timesofindia.indiatimes.com