M&M cushions dealers from cess blow; others likely to follow suit

M&M has offered relief to dealers against cess losses while GST 2.0 led buyers to defer purchases, with overall August auto retail sales up 2.84% year-on-year, FADA said

Mahindra & Mahindra (M&M) has extended relief to its dealers as the industry faces a potential ₹2,500 crore hit due to the removal of compensation cess on luxury cars. The company has agreed to offer incentives that would offset the loss of the cess, according to industry sources.

The Federation of Automobile Dealers Associations (Fada) said other manufacturers have also indicated plans to follow suit, offering similar support to dealers sitting on inventories of around 600,000 vehicles stocked up in anticipation of the festival season surge.

 

The industry body had earlier appealed to Union Finance Minister Nirmala Sitharaman to transfer the balance in the compensation cess credit ledger by September 21 to the IGST/CGST credit ledger, in a bid to prevent festival sales from being hit.

   

“M&M has taken the lead. A couple of other companies have also given indications that they will

line up offers that will insulate us from the loss of compensation cess. It will be through offers or discounts that match the loss,” said C S Vigneshwar, president, Fada. 

 

M&M did not respond to queries from Business Standard.

 

Almost all major original equipment manufacturers — including Maruti, Hyundai, M&M, Tata Motors, Toyota, Skoda, Renault, BMW, and Mercedes — have already announced price reductions ranging from ₹65,000 to ₹8.9 lakh, passing on the benefits of GST reforms to customers. M&M was the first passenger vehicle maker to confirm it would pass on benefits of up to ₹1.56 lakh starting from September 6, well ahead of the reform’s implementation date, September 22.

 

The dealers’ body pointed out that the expectation of lower automobile prices following the GST 2.0 announcement earlier this month appears to have dampened festival-season retail sales in August. It said the pending GST changes led many customers to defer purchases until September.

 

In August, auto retail sales posted modest growth of 2.84 per cent year-on-year, despite Onam and Ganesh Chaturthi falling in the month. “Customers continued to show strong enthusiasm with high enquiries and robust bookings, fuelled by the onset of festivals such as Onam and Ganesh Chaturthi. The only issue was conversion, which saw slowdown due to benefits of GST 2.0 kicking in September,” said Vigneshwar.

 

Sales growth was led by two-wheelers (2.18 per cent), passenger vehicles (0.93 per cent), and commercial vehicles (8.55 per cent), while tractors posted 30.14 per cent year-on-year increase. Three-wheelers and construction equipment saw declines of 2.26 per cent and 26.45 per cent respectively. Overall, auto retail sales stood at 1.96 million units, up from 1.91 million in August 2024.

 

The festival impact was most evident in Kerala and Maharashtra. Kerala reported 29 per cent growth in two-wheeler sales, 1.1 per cent in passenger vehicles, 27 per cent in commercial vehicles, and 39 per cent in tractors. Maharashtra saw rises of 20 per cent in two-wheelers, 13.5 per cent in passenger vehicles, 14 per cent in commercial vehicles, and 47 per cent in tractors.

 

August two-wheeler sales showed modest growth of 1.34 per cent month-on-month and 2.18 per cent year-on-year. “Excessive rains and localised floods in North India disrupted rural mobility, while erratic supply of popular scooter models constrained conversions. Despite these factors, overall sentiment is steady, and dealers remain confident that the festive season ahead will unlock robust growth momentum,” said Vigneshwar.

 

Commercial vehicle sales rose by 8.55 per cent year-on-year but dipped 1.11 per cent month-on-month. Dealer feedback suggested that product acceptance and order clearances remained healthy, driven by new ecommerce contracts and replacement demand, but the market was unsettled in the last week due to speculation around GST reductions, causing some buyers to postpone purchases. With rains subsiding and the festival season ahead, dealers remain optimistic for stronger performance in September.

 

Passenger vehicle momentum slowed in the latter half of August, as the GST 2.0 reforms announcement – by Prime Minister Narendra Modi in his Independence Day speech -- prompted many customers to delay purchases in anticipation of price cuts. PV sales stood at 323,256 units, up slightly from 320,291 units in the previous year, with market leader Maruti Suzuki remaining flat at 127,905 units.

 

“Heavy rains and floods in some regions further disrupted walk-ins. At the close of August, average inventory levels stood elevated at around 56 days. Despite this temporary pause, demand fundamentals remain intact, supported by festive sentiment and strong customer interest in both ICE and EV models. Dealers expect September to deliver a sharper rebound, as GST clarity and auspicious festival days converge to unlock deferred demand,” added Vigneshwar.