Hikes Amid Slowdown: What's Driving Rising Car Prices in India?

In what appears to be a challenging balancing act, major car brands in India are implementing price hikes just as the sector faces declining sales and economic headwinds. This wave of price increases, set to take effect from April 2025, comes at a particularly precarious time for the industry, with February retail data showing a broad downturn in automotive sales. We take a look at what lies behind these hikes, and what could be their impact.

Hikes Amid Falling Demand

Nearly every major player in the Indian automotive market has announced price revisions for the coming quarter. Maruti Suzuki, the country's largest carmaker, has declared an increase of up to 4% across its model range—its third price hike within a 12-month period. Tata Motors will raise prices by up to 2% for its passenger vehicles, including its electric vehicle lineup. Similarly, Kia India plans a 3% increase from April 1, while its sister brand Hyundai will implement hikes of up to Rs 25,000 across its portfolio.

Honda Cars India has joined this trend, with Vice President of Marketing and Sales Kunal Behl stating, "Honda Cars India will revise prices across all models from April 2025, due to rising input costs and operational expenses. Despite efforts to absorb these costs, some price revision has become unavoidable."

Other manufacturers following suit include Mahindra and Hyundai with increases up to 3%, MG Motor India with a similar 3% adjustment, and Skoda, which has also announced a 3% price hike.

An Uncertain Market

These price increases come at a particularly challenging moment for the industry. According to the Federation of Automobile Dealers Associations (FADA), February 2025 witnessed a significant contraction in auto retail sales across almost all segments. The passenger vehicle segment registered a concerning year-on-year decline of 7.8%, while two-wheelers saw sales drop by 5.4%. Commercial vehicles and three-wheelers reported even steeper declines of 9.2% and 12.3% respectively.

FADA's data indicates that rural markets are particularly affected, with consumer sentiment deteriorating amid inflationary pressures and uncertain economic conditions. The report specifically highlighted "poor market sentiment" and "weak rural demand" as key factors behind the slump.

Industry observers note that the combination of rising prices and falling demand creates a particularly challenging environment for the automotive sector. Dealers are already struggling with inventory management, and these price hikes could potentially further dampen consumer interest in an already cooling market.

The Cost Conundrum
Various manufacturers have consistently cited similar factors driving these price adjustments. Rising input costs, escalating commodity prices, supply chain disruptions, and adverse exchange rates figure prominently in company statements.

The main raw materials for carmakers include steel, aluminum, copper, lithium, nickel, cobalt, and plastics, among others. These materials are critical for manufacturing various components of vehicles, from the body and chassis to batteries and wiring, especially as the industry shifts toward electric vehicles (EVs).

The tail-end of 2024 saw prices of raw materials trend downward or flatten, reflecting a mix of oversupply, reduced industrial activity, and efforts to optimize supply chains.

For example, steel prices have seen fluctuations but generally softened in late 2024. However, companies said that the prices, which had stabilized briefly in late 2024, have resumed their upward trajectory, directly impacting production costs.

Hardeep Singh Brar, Kia India's Senior Vice President, elaborated on the company's position: "The hike offsets increased raw material and input costs, though the company is absorbing much of the burden to keep it manageable for customers."

Similarly, aluminum prices have been volatile but appear to have stabilized or slightly declined in recent months. After significant drops in 2022 (e.g., -45% from peak), prices in late 2024 and early 2025 have likely remained below their mid-2024 levels, influenced by weaker industrial demand and improved supply chains.

The third major raw material, copper, saw prices surge in mid-2024 due to EV demand and supply constraints, but by late 2024, they began to soften as global growth slowed.

Meanwhile, even as manufacturers are attempting to mitigate the impact on consumers, the scale of cost increases seems to have made some degree of pass-through inevitable. Industry analysts suggest that automakers have been absorbing rising costs for several quarters, but margin pressures have intensified to a point where price adjustments can no longer be deferred.

Strategic Considerations

The timing of these price hikes reflects complex strategic calculations by manufacturers. Announcing increases well in advance gives potential buyers a window to make purchases before the new rates take effect, potentially creating a short-term sales boost in March—the final month of the financial year when companies are keen to boost their annual numbers.

Moreover, the relatively modest nature of most increases—generally capped at 2-4%—suggests manufacturers are wary of further suppressing demand. The relatively modest nature of most increases—generally capped at 2-4%—suggests manufacturers are wary of further suppressing demand. They need to protect margins while avoiding price points that could drive away already hesitant consumers.

Some manufacturers are also using this opportunity to realign their product positioning. Honda, for instance, will implement varying increases across its model lineup, potentially adjusting the competitive positioning of models like the recently launched Elevate SUV.

Consumer Impact and Market Outlook

For consumers, these price hikes translate to thousands of additional rupees when purchasing a new vehicle. On an entry-level car priced at approximately Rs 6 lakh, a 3% increase represents an additional Rs 18,000—a significant sum for budget-conscious buyers.

In such circumstances, consumers tend to stretch their purchase timelines or downgrade their model choices. Some may even shift from new vehicles to the pre-owned market, while others may postpone purchases altogether.

The outlook for the remainder of 2025 remains uncertain. While the upcoming festive season typically boosts automotive sales, the combined effect of higher prices and economic challenges could subdue the usual seasonal uptick.

The second half of 2025 will be critical for the auto industry. If economic indicators improve and inflation moderates, the sector could see a gradual recovery. Otherwise, manufacturers may need to reassess their pricing and production strategies.

As automakers implement these price adjustments, they find themselves at a strategic crossroads. The need to maintain financial viability through appropriate pricing must be balanced against the risk of further dampening an already contracting market.

These pricing decisions reflect fundamental challenges in the automotive ecosystem that could shape the industry's trajectory for years to come.

Whether these price increases represent a necessary correction or a risky gamble in challenging market conditions remains to be seen. What is clear is that both manufacturers and consumers are navigating an increasingly complex automotive landscape where traditional market dynamics are being tested by unprecedented economic pressures.