Duty hike to have bigger impact on auto sales

Revised
price*

Chevrolet Optra8.28

8.43

Chevrolet Tavera6.536.73 Honda Civic11.4211.57 Hyundai Verna6.556.70 Mahindra Scorpio6.997.19 Ford Fiesta6.857.00 Maruti Suzuki6.546.69 Tata Scorpio 8.869.09 Tata Sumo6.556.75 Skoda Octavia10.9511.1 In Rs lakh
Ex-showroom price Mumbai.*Revised
prices are just an indication of the
possible case where the full duty hike
has been passed on to the customer

 The central excise duty on passenger vehicles that house engines of more than 1,500cc capacity (up to 1,999cc) will be charged an additional excise duty of Rs 15,000, while vehicles with 2,000cc-plus engines will be taxed Rs 20,000 more.  A basic hike of Rs 15,000 per vehicle will result into an addition of Rs 6,000-7,000 to the price, taking the total burden to Rs 22,000 per vehicle thanks to the subsequent increase in value added tax (VAT), road tax and insurance. Similarly, a Rs 20,000 hike will result in an icrease in price of Rs 27,000-28,000 per unit. Experts say the hike is planned to promote sales of smaller fuel efficient cars.  Jnaneswar Sen, VP (marketing), Honda Siel Cars India (HSCI), said, "This sudden hike in excise duty has taken us by surprise. It will definitely have a much larger impact than the hike itself when other revised costs are added to vehicle's price. All this has happened when manufacturers are already facing problems like high input and fuel costs. We have not assessed the impact on sales (because of the hike) but we will get a clearer picture by the end of the month."  In a strongly worded statement, the Society of Indian Automotive Manufacturers (Siam) opposed the hike saying: "In the current situation of economic difficulties and spiraling inflation, the auto industry feels it is inappropriate for the government to increase the price of vehicles, especially since the industry is going through a downturn. The auto industry vehemently opposes this excise duty increase and requests the government to immediately withdraw this unwarranted hike."  The hike will have the maximum impact on companies that primarily manufacture utility vehicles, such as Mahindra & Mahindra (M&M), and also on those companies that do not have a presence in the compact car segment, like Honda Siel Cars India (HSCI) and Toyota.  In the UV segment, M&M sells the Scorpio and Bolero models, which accounted for 80 per cent of the company's overall passenger vehicle sales of 129,911 units last year, according to figures available from Siam. Both models will be hit by the revision in the duty. Company officials refused to comment on the development when contacted.  Experts fear that the industry's natural progression in demand from compact cars to sedans will be restricted up to a certain extent due to the aditional levy. "The gap in preference for small cars and sedans will get wider. Companies that had attempted to bridge the gap between compact cars and mid-sized sedans will loose out the most after the directive," said an official from a car manufacturing company.  The hike will also mean that certain models in the same segment, like the higher mid-sized segment, will suffer from a price differential due to the size of their engines irrespective of their categorisation.  For instance, the Maruti Suzuki SX4 (1586cc), which is priced around Rs 6.54 lakh (Ex-showroom Mumbai base version), will get dearer by about Rs 20,000. Meanwhile, the City (1497cc), Honda's flagship model that is priced at Rs 7.14 lakh for the base version, will see no change in price.