Car dealers take ₹2.5K cr cess blow, turn to original equipment makers

Industry estimates impact for every dealer at ₹3-5 crore

An unprecedented GST rate cut and the beginning of Navratra shored up car sales considerably, but passenger vehicle dealerships were grappling with a staggering loss of around ₹2500 crore due to scrapping of compensation cess -- which they have already paid-- and they have written to the original equipment makers (OEMs) to find a way out, an industry source said.

 

“Fresh calculations show that the cess amount which has now gone void from September 22 is around ₹2500 crore. Roughly, this would work out to around ₹3-5 crore per dealer,” he said, adding that dealerships are now waiting for the response from OEMs on how this financial burden could be shared, or if any kind of financial scheme could be worked out.

 

OEMs in a dilemma

 

“OEMs are telling us that they are waiting for clarity before any call can be taken,” said the person quoted above.

 

The value of cess paid by car dealers was estimated to be around ₹4000 crore in September. Dealers offered discounts and freebies to lure customers to book during the Shradh period before GST 2.0 kicked off on September 22. Dealers had an inventory of 600,000 units in the beginning of September, and they have managed to sell around 100,000 vehicles through various offers, discounts etc.

 

In the shadow of Shraddh

 

In order to entice the customer during Shraddh -- when people avoid new purchases -- and also to convince him to prepone buying, dealers, on their part, were offering 2-3 per cent extra in discounts and other offers (like accessories etc). Some of the major OEMs have said that they would bear the difference in GST on the car so as to cushion the dealers and ensure sales.

 

M&M, for example, had passed on the full GST benefits to customers from September 6.

 

The Navratra boost

 

Auto sales, however, have picked up with the onset of the festival season. Maruti Suzuki India retailed close to 30,000 cars on Monday, while Tata Motors has made 10,000 deliveries.

 

Partho Banerjee, senior executive officer (Marketing & Sales), Maruti Suzuki India said that they had already had 80,000 inquiries on Day 1 and crossed 25000 car deliveries till 8 pm, which is likely to touch 30,000 units by end of the day as showrooms will remain open till late night to honour customer deliveries.

 

“The response has been very good and we have not seen such enthusiasm in the last 35-years. In fact, since we announced the price cuts on September 18, we have till date got 75,000 bookings, or an average of 15,000 bookings per day. This is roughly 50 per cent more than the bookings happening earlier,” Banerjee told reporters adding that post the GST slab rationalisation the small car bookings have been very good.

 

“We may stock out on some certain variants as well,” he added.

 

Tarun Garg, whole-time director and chief operations officer, Hyundai Motor India, said, “On Day 1 alone, Hyundai Motor India recorded around 11,000 dealer billings, which is our highest single-day performance in the past five years. This is a clear testament to robust festive sentiment and customer confidence.”

 

Tata Motors recorded 10,000 deliveries and over 25,000 inquiries on day 1 of Navratri marking a strong start to the festive season.

 

In a bind

 

Dealers have written to original equipment makers (OEMs) to discuss how this financial burden could be shared or if any financial scheme could be worked out

OEMs are waiting for clarity before taking any call on addressing the cess balance issue

Some major OEMs said they would bear the difference in GST on the car to cushion dealers and ensure sales

But auto sales have picked up with the onset of the festival season