Budget Blues hit Indian auto segment

The Union Budget 2012-13 did not come as good news for the Indian auto industry. This industry makes substantial contribution to the economy of the country, and now with the unfavorable decisions the growth of the industry as well as the country is expected to remain torpid. A wave of disappointment has rushed through the major car makers present in the country and they were pretty forward with their comments on the subject. Both the mainline and luxury car companies responded to this hike in the excise duty with an increase in the car prices which will ultimately strike the customers’ pockets and sentiments. The cars with length less than 4 meters and engine capacity not more than 1,200cc in case of petrol and 1,500cc in case of diesel fall in the small car segment; the excise duty on small cars has increased from 10 percent to 12 percent. The cars with length more than 4 meters and engine capacity of over 1,200cc in case of petrol and 1,500cc in case of diesel will be charged an excise duty of 27 percent instead of 22 percent and a fixed duty of Rs 15,000 will also be levied.

Cars with length over 4 meters and engine capacity less than 1,200cc and 1,500cc in case of petrol and diesel respectively will now be charged excise duty of 24 percent in place if 22 percent. The vehicles that are imported as full units will also see an increase in the customs duty. For the imported vehicles with FOB value of more than USD 40,000 and engine capacity of over 3,000cc in case of petrol and 2,500cc in case of diesel, the customs duty has increased to 75 percent from the previous 60 percent. Mr. Lowell Paddock, President and Managing Director of General Motors India called the Union Budget as populist and supported the focus on infrastructure, education, skill development, agriculture, irrigation and health care. He however does not support the increase in the excise duty on passenger cars and mentioned that because of the high interest rates, high fuel and commodity prices etc the auto sector is already struggling and during this slow time it expected the government not to tamper with the current excise tax structure.  He also stated that the automotive industry was expecting the government to announce some other measure that would help boost the demand of the vehicles which clearly did not happen.

Michael Boneham – President and Managing Director, Ford Indiatoo expressed his views on the Union Budget. He said, “One of the clear takeaways from the Union Budget 2012-13 is the impetus it will provide to infrastructure development, with its focus on improvements in areas like the power sector and road network development. The stimulus to social sector is progressive and a welcome step towards development of the economy.  We are also pleased with the Government’s decision about not levying extra tax on diesel vehicles as any additional tax would have been a regressive step. However the announcement of a 2 per cent increase in excise duty is disappointing and not favorable towards the auto industry. This will lead to increase in prices of our products and will have negative impact on consumer confidence. The increase in excise duty for large cars up to 27% (ad velorum) is again not favorable though we are assessing its full impact on our product portfolio’’.

Mr. Michael Perschke, Head of Audi India also expressed his letdown, he said, “The increase in excise and customs duty on large cars in this budget is very surprising. This increase comes at a time when the Indian automotive industry was finding favor with customers looking for better and efficient cars.  We may now need to re-evaluate our pricing strategy in India. However we do welcome the positive announcements on increase of investments in infrastructure and encouragement to private investment which should drive higher growth in the economy. The revision and reduction of personal tax slabs will result in increased savings and possibly higher spends. The GDP growth forecast of 7.6% for next financial year also augurs well for the country and we expect India to remain one of the most vibrant consumer markets.” "The duties announced will definitely act as a growth deterrent for the overall auto industry. Moreover, it becomes difficult to plan our long and mid term strategies in such a volatile market" said Mr. Neeraj Garg, Member of Board and Director Volkswagen Passenger Cars.

Mr. Sandeep Singh, Deputy Managing Director, Sales and Marketing, Toyota Kirloskar Motormentioned, “A rise in excise & import duty and input costs will not be very conducive for the auto industry as the additional burden of increased duty will directly affect the buyers and hence would lead to slowdown in sales. CBU prices will also be affected on account of a rise in customs duty. We have no choice but to pass on the price increase to the consumers. The average increase in price ranges from 2 to 4%.  Shinzo Nakanishi, Managing Director of Maruti Suzuki India said that the increase in the excise duty is not a good move and will highly affect the automobile industry which has already been fighting a slowdown.

Suhas Kadlaskar, the Director of Corporate Affairs and HR of Mercedes India indicated that the company is disappointed with the government decision because they were planning on reducing the prices of the large vehicles rather than increasing them further. He also mentioned that the premium car makers would be affected the most with this step as they are the ones who contribute advanced technology to the country. The company has no choice but to pass on this burden to the customers, he added. The average price hike for Mercedes would lie between Rs. 2 lakh and Rs. 3 lakh.