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GST: Passenger vehicle makers brace for short-term loss

Under GST, most vehicles will fall under the highest tax bracket of 28%, with an additional cess ranging from 1-15% based on the segment the vehicle falls under.

business Updated: Jul 08, 2017 18:45 IST
Shally Seth Mohile
A worker assembles a new vehicle on the assembly line at the General Motors Corp. in Talegaon, near Mumbai.
A worker assembles a new vehicle on the assembly line at the General Motors Corp. in Talegaon, near Mumbai.(AP File Photo)

Passenger vehicle makers have resorted to differential distribution and sales strategy ahead of the roll out of goods and services tax.

While some like Hyundai Motor India Ltd and Mahindra and Mahindra Ltd have chosen to curtail dispatches to dealers only marginally and offering steep discounts in a bid to ensure that buyers do not postpone purchase till GST gets implemented, others car market leader, Maruti Suzuki India Ltd and Toyota Kirloskar Motor Ltd, have reduced the shipment to the dealerships drastically to ensure the dealerships are able to liquidate the stock ahead of the roll out. The discounts being offered by them are only on select models.

Pawan Goenka, executive director at Mahindra and Mahindra said the quantum of despatches to the dealerships and the discount is a function of the extent of loss one is incurring on a model owing to GST transition.

While for automobiles the loss on account of transition varies from 0.2% to 6%, for tractor it’s as high as 7% across the model range, he said. “We are trying to curtail despatches but we cannot do much. It’s about creating that fine balance,” said Goenka citing instances of a hybrid Scorpio the prices of which are expected to go up by as much as Rs1 lakh owing to a peak GST rate of 43%. We may not pass it on fully, but we’ll have to pass it on to a great extent,” he said. Depending on the state level taxes, prices are expected to go down by 3% to 4% on sports utility vehicles, he said.

Under GST, most vehicles will fall under the highest tax bracket of 28%, with an additional cess ranging from 1-15% based on the segment the vehicle falls under, its engine size and type (petrol or diesel) and also size of vehicle.

Broadly, the effective GST rates indicate the highest tax savings for sport utility vehicles (SUVs), where the rate is down to 43% from the present 55.3%. It would be lower also for mid-sized cars or sedans and large cars. There would be a marginal tax savings on small cars (except diesel).

Local arm of the Korean carmaker, Hyundai Motor India is pulling all stops to woo buyers.“We have taken a taken a very strong sales promotion which is equivalent to the year end promotion while also giving a price protection to the customer for post GST prices,” said Rakesh Srivastava, senior vice president-- sales and marketing at Hyundai Motor India. With the price protection, the buyer is eligible to get a refund should the prices go down from 1 July. The move, Srivastava pointed out has heightened the level of enquiries and the bookings making June the high pitched month for retail sales and help reduce unsold stock at the dealerships. He declined to comment on the extent of discount as it varies from state to state and the model one opts for. “Am not making any money in this transition, on contrary, am making a loss as I have to cover my channel partners for the variation in prices,” he said.

A Hyundai dealer who declined to be identified said, “This is merely sales tactic as most of manufacturers are already aware of the GST rates and its impact on prices.

RS Kalsi executive director sales and marketing did not respond to calls and text messages. A Maruti spokesperson declined to comment. A Maruti dealer who spoke on condition of anonymity said Maruti has reduced deliveries in the current month to liquidate stock ahead of the GST. Also, the discounts being offered by the company is only on select models such as Wagon R and Alto.

N Raja, director and senior vice president sales and marketing at Toyota Kirloskar Motor Ltd said unlike other manufacturers Toyota is not offering any schemes. “My dealer billing this month will be 50% lesser of what we normally do,” said Raja adding that June sales will be weak on account of lesser dispatches. Auto makers in India report despatches to dealers and not end buyers.

Subrata Ray, an analyst at ICRA Ltd said he expects most manufacturers to post a decline in volumes this month and sales to be under pressure in the first half of next month.