The auto firms exploring opportunities to avail the lower tax rate on sub-4 metre cars
The differentiated tax structure for smaller and larger vehicles in the Indian market has resulted in the emergence of a unique category of compact sub-4 metre sedans and utility vehicles which are finding increasing favour among consumers. Come mid-2013, half a dozen sub-4 metre vehicles will be on road in India in what would be a first for any country globally.
While Maruti Suzuki (MSIL) and Mahindra & Mahindra (M&M) have already moved in with sub-4 metre products, sedan DZire and compact SUV Quanto respectively earlier this year, up ahead are launches from Ford (EcoSport), M&M (sub 4-metre Verito) and Honda (Amaze) in the category.
Deepesh Rathore, managing director, IHS Automotive India, said: "Excise duty on sub-4 metre vehicles at 12% is half of that levied on larger vehicles. Manufacturers can reduce the length of the vehicle and introduce products at aggressive price points in the market. This has resulted in the creation of category of products which is unique in India. The segment holds a lot of promise and all car makers be it Ford, Honda or Hyundai are exploring opportunities."
Between April and October this year, nearly 115,003 sub-4 metre vehicles were sold in the country.
In the entry-level sedan segment, for one, growth has largely been driven by introduction of the sub 4-metre DZire by Maruti Suzuki in February this year. The company has sold 87,359 units of the car between April and October this financial year, which is an increase of 74% over the 50384 units sold in the same period last year. The segment itself has grown by 32% to 122,613 units in this time.
"The growth in the entry-level sedan segment has been driven by sub-4 metre products. With interior space remaining the same, it seems that price points and enhanced features have a more important role to play than a slightly reduced boot space," said Shashank Srivastava, executive director (international market development), MSIL.
Currently, the company registers nearly 92% of average monthly sales of 12,500 units of the DZire from the sub-4 metre variant while the remaining numbers come in from the demand for the older longer variant from fleet operators.
The skewed numbers in favour of sub-4 metre variants are also evident in sales at Tata Motors and M&M. While Tata Motors sold 23,185 units of the sub-4 metre Indigo CS and a mere 123 units of Indigo between till October this fiscal, Mahindra has registered over 12,000 bookings for the sub-4 metre SUV Quanto since its launch in September this year.
"The demand generated by the Quanto has necessitated that we increase production of the vehicle by 40%. We will produce 3,500 units of the Quanto from the unit in Nashik by January next year," said Pravin Shah, chief executive (automotive division), Mahindra & Mahindra (M&M).
To tap into the growth potential in the category, Mahindra has scheduled for launched a sub-4 metre version of the Verito in the last quarter of the current fiscal. Ford too will bring in the sub-4 metre EcoSport early 2013. "As a strategy, we try to develop products in compliance with the policies and the tax structures in a country while at the same time keeping in mind the market requirement. It makes for an attractive proposition to have more sub-4 metre vehicles in our portfolio. It made the case stronger to bring the EcoSport platform to India. Our engineers worked around the vehicle, tailored in consumer requirements to offer an attractive product," said Vinay Piparsania, executive director (marketing, sales and service), Ford India.
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