GST ushers in price cuts from carmakers, but hits auto sales in June
Though most automakers have passed on the GST benefits to the customers, they saw a rough sales weather in June as anxious customers delayed their vehicle purchases.Updated: Jul 01, 2017 18:00 IST
India’s largest carmaker Maruti Suzuki reduced prices of some of its vehicles by 3% on Saturday, passing on the benefit of lower taxes for certain segments of vehicles under the Goods and Services Tax (GST) system.
In what is being seen as the biggest tax reform since independence, the country switched to a new nationwide indirect tax system at the stroke of midnight, replacing a host of state and national levies. GST unifies the $2 trillion economy into one of the world’s biggest common markets.
The biggest cuts will be in Maruti Suzuki’s petrol cars. “The rate of reduction varies across locations depending on VAT rates applicable prior to GST... We have passed on the entire benefit of GST rates on vehicles to its customers,” a statement by the company said.
The discount will translate into a maximum of Rs 23,400 cut, which is the case for a top petrol trim of Ciaz sedan.
But Maruti’s hybrid vehicles — cars that use an electric motor in tandem with the regular diesel engine —became expensive by at least Rs 1 lakh as the tax rates on them went up from 12% to 28%, in addition to a 15% cess. “Owing to withdrawal of tax concessions on mild hybrid vehicles, the price of Smart Hybrid Ciaz Diesel and Smart Hybrid Ertiga Diesel has increased,” the company said.
SUVs and luxury cars too became cheaper. BMW, Mercedes-Benz, Jaguar Land Rover and Audi started passing on the GST benefits to the customers, even before the new tax regime came into effect.
Some of their models became cheaper by as much as Rs 10 lakh, the cost of a mid-size sedan.
But the biggest price change in the post-GST era would be that of the BMW i8. The hybrid supercar now costs Rs 2.62 crore, becoming costlier by Rs 48 lakh.
Most automakers faced a tough June as prospective buyers put off their purchase plans till the GST rollout. That prices would be cut for many segments of vehicles was known as early as May when the Union government decided the tax rates for the sector.
“The uncertainty surrounding the GST implementation with regard to the passenger vehicles has impacted the retails as the customers are postponing their plan of purchasing the vehicle post-GST roll out,” N Raja, Toyota Kirloskar Motors’ director and senior vice-president (Sales and marketing), said in a statement on Saturday.
Toyota saw an 85% drop in sales, with its two bestsellers Fortuner and Innova Crysta getting a price cut under GST.
Similarly, Hyundai and Mahindra & Mahindra saw 5.6% and 3% drops.
Maruti Suzuki posted a mere 1.2% growth in domestic sales, with small-car sales dropping by 8.9%. The company also had its biannual week-long maintenance shutdown mid-June.
Experts said the companies had anticipated these trends, and were cautious about their manufacturing.
“Fearing GST roll-out, automakers slowed down their production and dispatches to dealers to let them clear the old stock and avoid pileup of inventories not liquidated in the month,” Amit Kaushik, India managing director of strategic consultancy firm UrbanScience, told HT.
But the industry expects the dip in sales to be temporary. “We expect very strong bounce back in July,” Kaushik said.
Rajan Wadhera, president of M&M’s automotive sector, said: “We are closely observing GST and strongly believe that once we tide over the initial uncertainties, GST is set to usher in a new era for the economy in general and the automotive industry in particular.”
First Published: Jul 01, 2017 17:55 IST