GST Impact on cars drives sales growth in June 2017 for Honda, Maruti Suzuki but Hyundai, Ford and Tata suffer

The introduction of GST or Goods and Services Tax on 1st July 2017 triggered a positive impact in the Indian automotive industry with carmakers benefiting the most as sales figures grew. How? Read on to find out

By:Published: July 5, 2017 4:55:06 PM

The Goods and Services Tax that was implemented a singular tax structure across various industries. While there is a negative impact of GST on some industries, the new tax structure has proven quite beneficial for some, one of them, being the automotive industry. This includes two-wheelers, three-wheelers, commercial vehicles as well as the four-wheeler passenger vehicle segment. The earlier tax structure for passenger vehicles included Excise Duty, NCCD (National Calamity Contingency Duty), VAT (Value Added Tax), Infra Cess and CST (Central Sales Tax). These were segregated into different categories for passenger four-wheelers, small cars – petrol, small cars – diesel, cars above four metres in length but below engine capacity less than 1,500 cc, above four metres in length as well as having engine capacity over 1,500 cc, SUVs and hybrids. The small cars categorised in this bifurcation are sub-4 metres models which mean hatchbacks and compact sedans. The electric car category did not witness a change and a tax of approximately 13 percent is levied on them.

The announcement of GST just before the implementation for the Indian automotive industry triggered carmakers to pass on the benefits to its consumers. The first ones to offer benefits were luxury carmakers like BMW, Mercedes-Benz and Audi. Later on mass market manufacturers also joined the bandwagon which enabled dealerships to clear their existing stock before 1st July, 2017. Honda grew by 12 percent in the first half of this year where the Honda City and the WR-V contributed the most number of sales. In fact, the cumulative sales figure for the Honda City were at 34,125 units sold in the first half of this year itself, making it the highest selling model in its segment right now (5,187 units sold in June 2017). The WR-V also contributed an impressive 4,243 unit sales in June this year while other models haven’t fared as well, but still managed to contribute acceptable numbers. The BR-V managed to sell 567 units while the CR-V managed to clock only 24 sales and the Brio sold 283 units. The majority of contribution apart from the Honda City came from the Jazz which sold 1,307 units and the Amaze which had a sales figure of 1,193 units. The company also exported 450 units adding to the total sales figure. Maruti Suzuki India Ltd also grew by a 7.6 percent selling 1.06 lakh units. The premium positioning of the Indian carmaker is gradually increasing which is evident from the growing popularity of cars like the Ignis, Baleno and the likes as well as the long waiting period on them. Ford also saw a 5.1 percent rise in cumulative sales from 19,828 to 20,828 compared to the year-on-year growth in June. That said, the overall sales only in the month of June 2017 fell by a considerable 30 percent selling 6,149 units. The American carmaker sold 9,469 units. The growth of 30 percent in exports during the same time though offset the loss in the sales in the domestic market.

Also Read: Maruti Suzuki registers over 40 percent growth in premium car sales, GST impact leads to 3 percent price cut

Other carmakers which also witnessed a considerable rise in sales as they passed on pre-GST benefits to customers with a number of manufacturer level discounts. Some dealers too added incentives in order to attract more potential car buyers. Tata Motors is currently offering a discount from Rs 3,300 to Rs 2.17 lakh discount basis on the model. On the contrary, this witnessed a drop in sales by five percent due to supply constraints, as per company claims. Considering that Tata Motors’ brand perception is gradually increasing and hefty discounts due to the new tax structure, the hit from GST can be considered only temporary as new models, the Tiago, Hexa and the Tigor are gaining popularity. Hyundai Motor India too saw a drop in domestic sales of 5.6 percent registering sales of 37,562 units in June 2017 compared to 39,807 units for the same month in 2016.

Although GST has proven to be beneficial for the Indian automotive industry where almost every manufacturer has not just passed on the benefit of the new tax structure to customers. The ‘one country, one tax’ has also lowered prices where state-specific taxes were also incurred. But there have been some manufacturers and their specific models which have witnessed a considerable rise in sales, other carmakers have seen a dip in their sales for last month. Although GST uniforms a number of taxes which will be levied on cars earlier, the industry will take some time, especially in the mass market segments, to start adopting to the new tax structure.

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