GST: Reduced rates yet to bring cheer to retail car sales

A reduction in prices post the goods and services tax (GST) has not resulted in an immediate pick-up in retail demand for cars. Auto firms are seeing a temporary slowdown in demand this month despite wholesale dispatches to dealers expanding.

Two factors are responsible for the trend: First, most companies had pushed volumes aggressively, backed by hefty discounts, to clear pre-GST stocks in June. That was to avoid losses on input tax credit from July 1. Second, companies have witnessed a slowing demand from small traders and businessmen as this segment is still struggling with the impact the GST has had on their own business. This segment is estimated to bring 25-30 per cent of sales.

“Retail demand is weak in July. The GST has brought challenges for many traders and businessmen. For a large number of such buyers, the GST is a bigger disruptor than demonetisation, and the future is uncertain for them. They will take time to stabilise. This is expected to affect demand for high-value purchases like cars and real estate for now,” said Rakesh Srivastava, director (sales and marketing) at Hyundai, the country’s second-largest carmaker. 
 

All carmakers had revised prices downwards from July after the GST, which led to a uniform tax across the nation. The decline was 2-3 per cent on an average in case of smaller cars, while it went up to 10 per cent in case of bigger, luxury vehicles. But that did not lead to an immediate jump in purchases. Most companies are expected to post a double-digit growth in sales to dealerships this month. This could be because dealerships had exhausted most of the stocks in the run up to the GST and were sitting on a thin inventory at the end of June.

“Events like these (GST) are disruptive to a certain degree and effects overall sentiment and emotions. It takes four-eight weeks for the dust to settle. Anybody who wants to own a vehicle also wants to know how the GST will affect his or her business. They wish to know if they are going to be in trouble financially as they will pay more taxes with increased transparency under the GST,” said Roland Folger, managing director and chief executive officer at Mercedes-Benz India.

However, the current trend does not mean that the GST will not lead to an improvement in the demand in the future. “The long-term benefit of the GST is intact, but there are challenges in the short-term,” said Srivastava. Companies anticipate a growth in retail demand, especially when the festive season demand kicks in from August-September.

N Raja, director and senior vice-president (sales and marketing) at Toyota, said the business community is still settling post the GST and this particularly impacts the small car business. “We did not push vehicles with discounts in June and, therefore, July is positive for us,” he said.