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Wednesday, December 14, 2016

Every year in December they say car prices will increase in January, Why?

News like to one above is published by all newspapers across India in the month of December every year. Car prices are likely to increase - why do I need to know that? So that I can buy the car now in December before the price is hiked in January. Simple! Car companies are indeed doing a great social service by telling everyone in advance about the imminent hike in prices and thereby helping us to save a few thousand rupees.
But, does it make any business sense? I mean telling everybody that "input costs have gone up and we were so far absorbing them. But from January, we are going to pass in on to you, keeping our profit intact". And then, why such news appear every year invariably during December, not any other time?
Moreover, why do I read about a lot of incentives, discounts and other freebies on car sale during December? Such announcements are understandable during festive seasons as many people like to buy cars on auspicious occasions. December does not have any festivals.
To understand this, we need to consider a few facts. First, the depreciation in value of a car is in the range of 6-10% every year. So, a car bought today will have 24-40% less value after four years. Second, car registration in India is on calendar year basis. That means a car registered in December 2016 is one year older than a car registered in January 2017 even though the registration is only one month apart. So, a car bought in December 2016 will become four years older in January 2020. But, a car bought in January 2017 will become only three year old in January 2020.
Therefore, if you want to sell your car in future you will get less value if you had bought it in December. It makes sense not to buy a car in December if you want to sell it later.
Now, let us come back to the apparent news. What will be the likely consequences of the news? It is basically aimed at enticing you to buy the car in December. That makes it advertising, not news. There are other reasons why car makers want to sell all stocked up inventory in December. The total number of a cars sold up to December gives the car fancy title like "Car of the Year" "People's Choice of the Year" etc. No wonder, they want to clear all their stock in December. For this reason most car maker postpone new launch till January. Tata motors have postponed its launch of Hexa till January next year.
To help calculate benefit or loss of buying a car in December, I am listing the price of a few Tata Motors' vehicles here (as on today, price is approximate only as it varies from states to states). Find out in January (with simple arithmetic) whether the news above is actually a news to help you or an advertisement to entice you.

Tata Tiago – Rs. 3.32 to 5.85 lakh
Tata Zest – Rs. 5.28 to 8.73 lakh
Tata Nano – Rs. 2.33 to 3.31 lakh
Tata Bolt – Rs. 4.73 to 7.42 lakh
Tata Safati – Rs. 9.72 to 10.95 lakh
Tata Indica eV2 – Rs. 4.89 to 5.60 lakh
Tata Indigo sCS – Rs. 5.12 to 6.54 lakh
Tata Safari STORME – Rs. 10.50 to 15.48 lakh
Tata Nano GenX – Rs. 2.33 to 3.31 lahk
Tata Hexa – to be launched in Jan 17 (exp 15 Lakh)
Tata Kite – to be launched in July 17 (exp 4 lakh)
Tata Nexon – to be launched in Dec 16 (exp 8 lakh)
Tata Aria – Rs. 12.15 to 17.46 lakh
Tata Sumo Gold – Rs. 6.82 to 8.64 lakh

Tata Xenon XT – Rs. 10.14 to 11.19 lakh

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