A day after the government announced a 2% cut in excise duty and service tax, leading commercial vehicle makers Tata Motors and Ashok Leyland said, on Wednesday, the savings will be fully passed on to their customers.

Auto stocks went up in anticipation on Wednesday. The BSE Auto Index jumped 3%, closing at 2,622.38; Tata Motors was up 5.87% at Rs 139.85 and Ashok Leyland up 3.26% at Rs 15.50.

The government decision on Tuesday to extend a 4% Cenvat cut, announced in December, to beyond March 31, 2009, also helped the market sentiment. After the Cenvat cut, commercial vehicles (CVs) attracted a duty of 10%. The latest 2% cut is applicable solely to categories that attracted the 10% excise duty.

PM Telang, executive director?commercial vehicles business unit, Tata Motors, said, ?We will pass on the benefit to the customers. In the third quarter, the company undertook some production cut and now our inventory is at a manageable level.?

In a media release, Ashok Leyland said, ?In line with the excise duty reduction from 10% to 8% in respect of trucks and auto components, the company will pass on the full benefit to its customers.? The move will mean a price reduction of over Rs 16, 000 per vehicle.

The company said this is despite the fact that the inventory of vehicles with the company?just as the rest of the commercial vehicle manufacturers?has suffered a higher excise duty.

Telang said the industry requires a bigger stimulus. Industry experts and analysts are sceptical how far the 2% excise duty cut will lift the sagging sales, as the overall economic activity has slowed and liquidity remains a concern.

The commercial vehicle sales saw a dip of 40% during the third quarter (Q3 ?09). Sales improved in January to 23,157 units from 17,920 units in December and 20,637 units in November. Overall, the automobile industry, in Q3, saw a drop of 32% to 98,760 units (inclusive of exports) from 144,608 units a year ago. In January, sales of the automobile industry dropped 7.45% to 768,622 units year-on-year.

The improvement in January sales came on the back of various measures, including the two stimulus packages announced by the government in December and January, containing the 4% Cenvat cut and specific measures to improve liquidity, besides assistance to states under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for buying buses as a one-time measure up to June 30, 2009.

In the recent interim Budget, the government?s announcement of an increased outlay for JNNURM projects, increased defence allocation and the six-month extension of the 2% interest subvention on pre- and post-shipment credit for certain employment-oriented sectors, including small medium enterprises, to September 30, 2009 are seen as blessings in disguise for the ailing automobile industry.

Sales push

• Duty cut will lead to a price cut of at least Rs 16,000 per vehicle

• 2% excise duty cut and extension of Cenvat cut to help auto firms

• Aid to states in buying buses, higher defence allocation also to help

• Commercial vehicle sales dipped by 40% during the third quarter