Budget 2014 - Is sub 4-metre the length to go for?

While the Budget 2014 brought in no direct benefits for the automobile industry, the earlier announced extension of the excise duty cut till December 31st 2014 is what the auto industry thankful for. The excise duty cut which was announced in the interim budget by the previous government was all set to expire by the end of June, 2014. Mr. Arun Jaitley, the current Finance Minister, gave the automakers some more time to cheer as he announced the extension of the excise duty cut till December this year.

As soon as the excise duty cut was announced the first time, all the manufacturers have passed on the concessions to the consumers by reducing the prices of the vehicles. While all the automobile manufacturers have expressed their joy for the extension of the excise duty cut, many hope that the extension will be continued beyond. The Confederation of Indian Industry has hoped for the extension to be till March 2015 before the 2014 Union Budget was announced.

Excise duty cuts:

You got the benefit!

As far as the benefits are concerned, for the car manufacturer and the customer as well, the small cars play a big role. They have the biggest share in the market and hence will benefit the both ends of the business. Many manufacturers are taking advantage of the sub 4-metre length benefits and are launching or developing such products. Now, despite being a sedan or SUV, some cars like Ford EcoSport, Honda Amaze and Hyundai Xcent are categorized as small cars thanks to their sub 4-metre length. And thus qualify for the same 8% excise duty tax for the small cars instead of 20% for sedans or 24% for SUVs.

Though Mahindra jumped the band wagon early and launched the Quanto, the sub 4-metre MPV or SUV, they failed to find success. But when Ford EcoSport was launched, Ford wasn’t able to stop its cash register ringing and they were unable to supply the cars as fast as the demand. Honda Amaze also has a similar story to tell as Honda regained their market share largely due to Amaze and the fact that it was the first diesel car from Honda. Honda has sold over 80,000 units of Amaze since its launch in April 2013. Hyundai’s Xcent, the latest to enter the sub 4-metre game, has also received great response in the market.

Other manufacturers are busy with their drawing boards to develop their own compact sedans or SUVs to cash in on the excise duty cut. Get ready for more small cars that are not really small.