India: Car prices go up on back of excise hike

Vehicles prices are set to rise across the automobile industry from Saturday onwards, with the Government announcing a two per cent hike in excise duties across all segments in Budget 2010-11.

The Finance Minister, Mr Pranab Mukherjee has said that the excise duties on small cars and two wheelers have been hiked to 10 per cent from eight per cent, while the excise on large cars, Multi Utility Vehicles and Sports Utility Vehicles has been hiked from 20 per cent to 22 per cent.

Unfazed by the hike in excise, the auto industry feels that the budget was largely on expected lines. Moreover, it feels that other benefits like the deduction for R&D expenses, and lower income tax on individuals, besides the higher allocation for infrastructure will have a more positive effect on the growth of the industry.

“The two per cent increase in duty for small and large cars was on expected lines, although some may be disappointed that the gap in taxation between the small and large cars has not been reduced. We believe that this budget will continue the momentum of growth in the automotive industry…The actual impact of the MAT increase will have to be seen, but most of our companies are profit-making anyway, so it won't have much of an effect on us,” said Mr Dilip Chenoy, Director-General, Society of Indian Automobile Manufacturers.

Car price hike

Most of the manufacturers have already announced a price hike from Saturday. The largest domestic carmaker, Maruti Suzuki has said that it will hike prices of various models by around Rs 3,000 and Rs 13,000.

Meanwhile, General Motors, Tata Motors, Hyundai and Volvo have all announced similar intentions.

Mr R. C. Bhargava, Chairman, Maruti Suzuki said, “We will raise prices equal to the hike in excise rates. I think the hike in excise is reasonable. With capital infusion, banks will also now have a lot of money, so there should not be pressure on liquidity or interest rates. Hence, sales should grow.”

Mr Karl Slym, President and Managing Director, GM India, however, expressed disappointment at the excise hike.

“I am disappointed that the excise on small cars has been increased, even more shocked that we've actually seen an increase for the large vehicles. The fuel price increase will also hurt. There is no change in our investment plans, because they're for the long-term. Impact on consumer confidence is likely to be in the short or medium term. We won't look to increase prices more than the indicative measures. From a straight duty point of view, it looks like the two per cent will be passed on,” he said.

Mr Arvind Saxena, Director and Board Member of Marketing and Sales, Hyundai Motor India, said that the excise hike is likely to have some negative effect on sales. The Korean company will hike the price of its entry-level car Santro by around Rs 6,000.

Meanwhile, two-wheeler makers have expressed mixed feelings on the Budget. While Mr Pawan Munjal, MD & CEO, Hero Honda Motors felt that the hike in excise will affect sales in the short-term, Mr Rahul Bajaj, Chairman, Bajaj Auto, said that hike was just as expected.

“It has been a very quiet and confident budget by laying out a fiscal roadmap for the future, in terms of the fiscal deficit and opening up reforms in fuel pricing. Broadly it has been very good. There is nothing for two wheelers specifically, but as the economy grows, we will grow too,” said Mr Venu Srinivasan, Chairman & Managing Director, TVS Motor Company.

Positive outlook

Industry analysts are positive on the outlook for the auto sector.

“With the increase in tax brackets, the FM has provided additional disposable income to consumers to encourage consumption. The marginal increase in excise duty will have a minimal impact on the consumer and hence will not deter them from purchasing their dream vehicle. A car at Rs 3.5 lakh will get costlier by Rs 6,500 approximately, which will increase the EMI by Rs. 175 only. The levy of Rs one per litre of excise duty and increased customs duty on petroleum products could increase the running cost of a vehicle, though very marginally,” said Mr Rakesh Batra, Partner and National Leader, Auto Practice, Ernst & Young.

Source: indiacar.com Source : Business Line (Online Edition) (2/26/2010)