The automotive space has been going through a tough recessionary phase in the past year or so. The switch to BS6 and the ongoing Coronavirus pandemic has made matters worse for the already struggling automakers. Car and bike sales have plummeted and all and sundry are attributing the slump to a variety of reasons. Curiously, a whole lot of people say that it is primarily because of jacked up prices of new cars and bikes.
But how accurate is that? Are cars and bikes more expensive now then they were say, ten years ago. To answer that question, we will take a closer look at how prices have increased over the last ten years. We will account for the increase in taxes, insurance cost and also factor in inflation. To make it even more relevant, we will only consider four products that are dominant in the classes that they find themselves in.
Hatchback
Looking at pricing trends for the Maruti Suzuki Swift (arguably India's most popular hatchback) we find that the top-spec petrol variant of the second-gen Swift, the ZXi, was priced at Rs. 5.53 lakh before taxes in 2011. The same variant is now priced at Rs. 6.78 lakh - an increase of a neat Rs. 1.25 lakh. Quite substantial, right? Wait till we look at the on-road prices. In 2011 the on-road price of this variant was around the Rs. 6.10 lakh mark. Today, the ZXI variant will set you back by Rs. 7.58 lakh -an increase of over a lakh and a half over the 2011 model, although to be fair, now the cost includes a three-year insurance cover(mandated by law) as against the one-year cover earlier.
Scooter
The Honda Activa is the default scooter for anyone looking at buying one. It has sold in the millions in India and Honda still sells close to two and a half lakh units a month. In its sixth generation, called 6G, the Activa costs Rs. 64,464(ex-showroom, Delhi). Back in 2010, the Activa cost Rs. 39,800 (ex-showroom, Delhi) a substantial Rs. 25,000 cheaper. On the road, the difference is even starker, the Activa was available for roughly Rs. 46,000 but today it costs Rs. 77,117 in Delhi.
Luxury sedan
The E-Class in Mercedes-Benz' bread and butter model in India and around the world. In many ways, it has been the quintessential luxury sedan for decades now. First made-in-India in the 1990s for our domestic market, the E-Class is a heavily localised (for luxury cars) product. In 2010, Mercedes-Benz launched E 250 (with a V6 petrol engine) at Rs. 41.13 lakh(ex-showroom, Mumbai). Today, the car (220-base trim petrol) costs Rs. 59.08 lakh in Mumbai(ex-showroom). On-road, the difference in price stretches to a mighty Rs. 21 lakh. In 2010, you could have the E-Class for Rs. 49 lakh while today you would have to shell out a cool Rs. 70 lakh.
Sports car
For this category, we compare prices of the Porsche 911 ten years ago and now. While there are other sports cars that have been around. There is simply nothing else that has sold in large enough numbers over the past ten years. Frankly many other sports cars weren't available throughout the last decade. Today, the 911 Carrera S retails at an ex-showroom price of Rs. 1.83 crore. Eight years ago, you could get yourself one at an ex-showroom price of Rs. 1.13 crore. Add taxes and insurance and that would mean an on-road price of Rs. 1.35 crore. Today you would need to pay Rs. 2.07 crore in Delhi to drive a 911 Carrera S home.
They seem expensive to me
Having read all that, you'd be like, it definitely seems like newer products are way more expensive. You'd be right. You do have to pay more money to acquire new cars and bikes than you would have ten years ago. But, here's where things get interesting. It can all be explained by one word really.
Inflation
Not considering the current economic crisis that we are in, India's economy has grown at a steady pace for most of the last decade. Inflation too has kept pace with our economic growth and hovered roughly around the 6.9 per cent mark. Long story short, what that means is that Rs. 100 in 2010 would be equivalent to Rs. 195 right now. And Rs. 100 now would have been Rs. 51 then.
In light of that information, when you look at how prices have increased over the ten-year period, one thing becomes obvious. Cars and bikes have not become expensive. On the contrary, they have become cheaper - Rs. 6.1 lakh in 2011 (that's what a Maruti Suzuki Swift cost) is equivalent to Rs. 11.40 lakh in 2020, much lower than Rs. 7.58 lakh that it asks for today. Do the math and it turns out to be 33 per cent cheaper. 33 per cent! That's huge.
And no, this is not an aberration. We used the same math (feel free to check and recheck the veracity of our claims - we couldn't believe the results and proceeded to verify multiple times) and found that the other three vehicles also turned out to be cheaper when accounting for inflation. The Activa by 2010 prices would have cost Rs. 89,700 today; but it costs only Rs. 77,000 - cheaper by 12,700. That means that the Activa today is more affordable by 14 per cent. The Mercedes-Benz E-Class should have been worth a whopping Rs. 95.55 lakh on-road. But you actually end up paying only Rs. 70 lakh - more affordable by a cool Rs. 25 lakh and 25 per cent. Moving up to the performance car, the Porsche 911 Carrera S with 2012 prices and accounting for inflation would have cost Rs. 2.4 crore, but instead you can get one for yourself at Rs. 2.07 crore on-road -14 per cent less expensive.
So, if automakers were to raise prices of their products by accounting for inflation (like how prices of most consumer products tend to increase over time) we would be looking at cars and bikes that are vastly more expensive. Instead, automakers armed with better technology and increased efficiency have been able to sell more units while also keeping prices in check. Remember, prices of most raw materials tend to increase as a function of inflation. So, the fact that automakers, even with increasing raw material cost, have managed to keep prices down, is a testament to the radical improvements in productivity and efficiency that they have achieved.
So what's really making them unaffordable?
With this myth debunked, we look at what's actually making vehicles unaffordable. Well, it turns out, they are actually not. Over most of the past decade, sales numbers have been on an upward trend unlike anything seen in India's automotive industry. India's booming middle class was driving this demand, until very recently. Over the last few years, the economy has nosedived as a result of a combination of a number of domestic problems - outside the scope of this story and this website actually (you'd probably need an economist to tell you what has gone wrong). As a result, new automobiles seem increasingly unaffordable for most people. Clearly, this is not because auto manufacturers have increased prices(they ought to - as all manufacturers have to), or because the government has increased taxes. It is just a reflection of the economic climate we find ourselves in.