GST: Car makers drive feel-good factor by doling out deep discounts

Carmakers and dealers doled out steep discounts to clear the inventory ahead of GST rollout

The automobile industry brought a feel-good factor for its consumers even before the goods and services tax (GST) came into effect on July 1. In the run-up to the roll-out of the new tax regime, carmakers and dealers doled out steep discounts to clear the inventory and avoid losses due to an input tax credit on stocks that entered the system before July 1. To ensure buyers do not postpone purchases, luxury car makers such as Mercedes and BMW offered benefits equivalent to post-GST rates immediately after clarity about the new regime came in the second fortnight of May. Buyers also lapped up these offers and companies saw a surge in retail sales for June.

From July 1, manufacturers started passing on the price cut benefits as the tax burden came down under the GST. On small cars, the price cut ranged from 1 to 2 per cent while on larger vehicles it was 8-10 per cent. Luxury cars and SUVs were the key beneficiary of the GST in the automobile sector as prices came down by up to 10 per cent. For the first time, manufacturers started launching vehicles with an all-India price tag and not city-specific ex-showroom price. Companies like Mercedes, Volvo, Skoda, and Nissan have already moved to this practice of having a uniform ex-showroom price across the nation. The on-road price could still vary due to different rates of road and registration taxes.

According to R S Kalsi, executive director (marketing & sales) at Maruti Suzuki India, the company had prepared itself well in advance through a cross-functional team involving finance, sales, and IT people. “We started dispatches of cars and spare parts by 11 am on the morning of July 1, hours after the GST was implemented,” said Kalsi.

More than 4,000 trucks enter and leave the Manesar and Gurgaon plants of Maruti Suzuki everyday. The two plants receive raw materials and components from 2,500 vendors in more than 3,400 trucks daily and send out 650 trailers loaded with cars every day. “We did it smoothly considering we have thousands of vendors who have sub-vendors and these sub vendors also have suppliers. Our teams educated them. Things were aligned. We are monitoring the progress closely,” said Kalsi. He believes that the GST will enhance demand.

Hyundai, the second-largest carmaker in the country, says the automobile industry has the potential to grow at 15 per cent in the next couple of years from 8 per cent at present on account of factors like the GST and other macroeconomic triggers.

“We believe Hyundai will be one of the largest gainers. We have products ranging from Rs 3 lakh to Rs 30 lakh. The GST will help us emerge stronger in the above Rs 10-lakh segment,” said Rakesh Srivastava, director (sales & marketing) at the Korean carmaker.

The company, which transports almost 2,000 cars everyday from its plants to dealerships and ports, said the GST would bring a significant change in the time and cost taken by logistics. “I believe there could be a reduction of 10 per cent in logistics cost. The net benefit will go to customers,” said Srivastava. The freight cost on a car ranges from Rs 10,000 to 14,000, the company says. Srivastava says the GST has helped dealers to clear the inventory to a large extent and release the blocked capital. “This money is now available for dealers to build inventory of fresh stocks that should lead to a good festive season demand for the company,” he added.