Mercedes-Benz India plans to increase vehicle prices by around 2% every quarter as sustained foreign exchange volatility continues to pressure margins, Managing Director and CEO Santosh Iyer told Autocar Professional. Rising input costs and a weakening rupee have made periodic price corrections unavoidable, he said, even as the luxury carmaker looks to balance profitability with demand stability. He added that the effective price increase last year was limited to around 5%, spread across three quarters. “So, effective price increase last year was about 5%. In the fourth quarter, we skipped because GST went down but now we have to start increasing by 2% every quarter."
The initial price hikes coincided with pent-up demand, which has since normalised, bringing growth back to a more typical trajectory, according to Iyer. "Pent-up demand went away at some point and now we are growing at the usual rate of 6–7% after the GST. We still need to recover nearly 10% to return to earlier per-car profitability levels. So, therefore, we have to be calibrated also that in the future, quarter on quarter and take 2% hike," he said.
He added that the exchange rate remains a fundamental challenge, even as the company continues to run internal cost optimisation programmes. "We cannot pass on everything to the market but this is a huge impact."
Iyer added that while GST cuts provided some relief, their impact was front-loaded and tapered off as the year progressed. "The GST, I can say, partially mitigated the impact because this 11% growth that you see pre-GST was mostly quarter 1 and Quarter 2. By quarter 3, this had tapered down. This would have been negative actually, by quarter 3. So, in that sense, GST really helped us to prop up and end the year at least on the positive side. If GST would not have happened, it would even have been a negative," he said.
Despite margin pressure, strong revenue growth and a richer product mix have helped support both the company and its dealer network.
Addressing concerns that margin pressure could affect India’s priority within Mercedes-Benz’s global allocation strategy, Iyer said localisation provides significant insulation. “If you see 90–95% of the cars that we are producing are locally. Now, the CBUs are only the 5%.”
He acknowledged that ultra-luxury CBUs could face constraints but said price corrections are being implemented there as well. “That 5%, if there is a squeeze on margin, definitely, we may not get, but those 5% are the G63 AMGs, the Maybachs and couple of S-Class Maybachs. There, we are taking up the price as well," he said.
Owing to these pressures, India may not be a priority market for low-volume models during periods of margin compression. Looking ahead, Iyer expects growth to continue, albeit in single digits, driven by macro stability, infrastructure spending, and wealth creation. “I would still say a single digit growth is easily possible. There is no supply chain issue. Exchange rate fluctuation impacts price, which impacts demand. Despite the uncertainties, I have a bullish long-term outlook for the luxury car market in India," he said.