Saturday, March 01, 2014
By Kamal Swami
No price cut by many auto companies due to decline in excise duty
Several carmakers have not fully passed on the recent cut in excise tax to customers, citing rising input costs and a large unsold stock as the factors pulling them back. This comes as a surprise as the duty reduction was offered in response to the industry's demand for government support to help push up sales which have been on a downhill drive.
Companies like the local units of Volkswagen, Honda Motor, Skoda Auto and General Motors did not effect any major price cuts on some of their key models while Ford and Mahindra & Mahindra have passed on only a part of the benefit on their major models. Maruti Suzuki and the Indian unit of Hyundai Motor, the top two carmakers in the country, as well as Tata Motors have offered price reductions in line with the duty cut on their entire range. In the interim Budget presented on February 17, finance minister P Chidambaram announced a 4-6% cut in the excise tax on cars and sport-utility vehicles in order to boost their sales by slashing prices. While most companies followed it up with immediate price reductions, a few exceptions have now been noticed where the changes have not been proportionate to the duty cut or been limited to some models.
Toyota Kirloskar Motors, the Indian joint venture of Toyota, has not changed the price of the Corolla Altis, its mid-size sedan. Czech carmaker Skoda Auto didn't touch the ex-showroom prices of its Octavia sedan and Yeti SUV, even though the tax cut was 6% on these models. "We have readjusted the prices across the Rapid and Superb model range and passed on the benefits to the customer," a Skoda India spokesperson told ET. "However, the prices of the allnew Octavia and the Yeti remain unchanged with a long-term view on the rising input costs."
Toyota said it has stopped production of the Corolla Altis as it prepares to launch the next generation of the sedan. The company has cut the prices of its other models like the Fortuner, Innova and Etios. American carmaker Ford, which is enjoying tremendous success with its compact SUV EcoSport, has cut its prices by just 0.8-2.7% on this top selling model. EcoSport accounts for about 60% of its total sales in India and the company had increased the model's prices in January. Ford India said the reduction it offered is rationalized across its entire line-up. "We had to subsidize the cost of dealer inventory to bring these benefits to customers and hence, a balanced view has been taken on the issue," a spokesperson said. "Also, different duty structures on power train, parts and components, along with the waiting period, were assessed to rationalize the reductions. We have passed on benefits up to .`25,947 on the EcoSport despite a strong order bank and continued demand." The government intention behind the tax reduction was to boost demand as car sales in 2013 fell 10%, the fastest decline in 11 years, to 18.07 lakh units.
The resultant price cuts were expected to attract some customers who have been staying away from the market because of a slowing economy and high borrowing and fuel costs. In fact, several of these companies have increased vehicle prices in the past two months. Skoda has raised the price of its Rapid sedan by up to 1.5% in January and followed it up with hiking the prices of a few other models in February. French carmaker Renault has kept the price of the petrol-powered version of the Fluence sedan unchanged, but had made the Scala sedan, Duster SUV and the Pulse hatchback costlier in January. Utility vehicle maker Mahindra & Mahindra has also increased prices in January and February to improve its profitability, but reduced the prices of its flagship Scorpio SUV by just 1.9% after the tax cut.
Excise duty is levied at factory gate and the companies have to pay the higher rate of tax prevailed at the time the unsold stocks were manufactured. Also, with the end of the fiscal year approaching, they are under pressure to improve profit margins. "Most players were not prepared for this surprise (tax) reduction. There is huge unsold stock valued at higher tax that now needs to be sold in the price range of new excise duties," a senior industry executive said.
Source: Economic Times