Does This Excise Duty Cut Is Enough to Revive Auto Industry?

Ahead of General Election, P. Chidambaram has tried to regain lost sentiment in auto industry. The move has been considered as pre-election strategy. The Finance Minister said in his speech that “To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce excise duty,” P. Chidambaram said.

As data released for car sale in January, 2014, it is clear indication that sale has continued to slump in January giving numbers around 1,60,289 units in a month, which is decreased by 7.29%. At this point what will be the effect of excise duty cut on the industry?

Policy Changes:

The excise duty on small cars have been reduced to 8% from 12% earlier. While the excise duty on SUVs, a fastest growing car segment in country have been reduced to 24% from 30% earlier.

The duty on large cars have been reduced to 24% from 27% and on mid-sized cars it have been reduced to 20% from 24%.With the rough calculation, this excise duty will cut around Rs. 12000 to 17000 on small segment cars,Rs. 24000 to 30000 on medium segment cars, and Rs. 50000 to 80000 on SUVs.

Potential Impact and Expert Views :

On the day of announcement market responded with very good buzz among voice of all stake holders of auto industry. Immediately, responding to the move many manufacturer came to capture the eyes customer by announcing some percentage point cuts in the prices of cars and claiming that the advantage has been forwarded to customer.

Now question arise that, Will this some percentage point cut on price of cars change its demand ? Will manufacturer be able to keep this move constant ahead of continuously increasing price of raw material ? What companies are more benefited with this move?

“We believe that this reduction in Excise Duty would reduce the acquisition price thereby making vehicles more affordable which would improve the consumer sentiment and hopefully revive the demand for vehicles,” Vikram Kirloskar, President, SIAM  said.

“It was a very nice budget, he did not fall for populist measure despite its being electioneering months. He has announced cut in excise duty of cars, SUVs, farm equipment and bikes which will definitely help in revival of demand, However, I did not hear anything for the commercial vehicle which badly hurt. I hope that there is something to revive this sector.” Ex- SIAM President Pawan Goenka said.

Even welcoming this move Kris Gopala krishnan, President CII, has thanked our finance ministry and said that this move is what CII believes in. he has appreciated this move showing confidence in revival of the industry.

Now talking about response from auto players, Nissan Motors India has decreased price on their car up to 6 %. “The price reduction by Nissan is in the range of 4 to 6 per cent and will apply to Micra Active, Micra, Sunny, Evalia, Terrano and Teana,” Nissan Motor India said in a release issued. Mr. KenichiroYomura, President Nissan Motor said “We at Nissan are happy to pass 100 per cent of the tax benefits to our customers.”

“We have… passed on the entire 4 per cent benefit to customers. We have asked all our dealers to sell the vehicles at lower prices,” Said Atul Gupta, Vice president, Sale and Marketing, Maruti Suzuki.

“The reduction in Excise Duty would substantially reduce the prices, making cars more affordable. The quantum of benefit will vary from Rs. 10,000/- to Rs. 1,35,300/- across all the models. Hyundai Motor India Ltd will extend the benefit of these excise duty cuts to customers with immediate effect & will also support its dealerships suitably.” Said Mr. Rakesh Srivastava, Sr. Vice President Sales & Marketing, HMIL.

Volkswagen have reduced price of Polo by Rs. 18000-31000, for Vento Rs. 14,500 to 27000 and for Jetta Rs. 38000-51000 have been reduced.

Premium car makers Audi and Mercedes have also flown with industry move and has lowered priced up to 3.82 lakhs on their cars. And Tata Motors, Mahindra and Mahindra, and other car manufacturers are no exceptions.

So, looking at above price cuts, it seems like this change would definitely improve the sentiment of the industry, but it remains question mark that up to what extent demand law would work. But yes, there will be increase in the demand for luxurious car, as this price cut results in around Rs. 2 to 3 lakhs discount.

It is also important to mark that if this excise duty cut delivers its proposed results, positive impact can be indicated in share prices of auto shares. This move will also give relief to depressed margin of the auto manufacturer and allow them to ensure smooth running of operation.

And in the last, a very important point which I must put in front of you, is that after upcoming election, new government will continue the same policy? And finally, it is very good to see some positive indications after pretty good time in auto industry but what we can do is only hope for more favorable environment ahead.

CarWorld1.com India’s preferred car website can help you buy a new car in Ahmedabad.