Oil price fall, excise duty hike: Impact on car sales

There have been several changes in the Indian economy in recent times that directly have an impact on the automobile industry.

By: | Updated: March 21, 2016 12:37 PM

car sales, car sales in India, car sales 2015, car sales Oil price, car sales excise duty hike, car sales impact, car sales news

Indian society has certainly taken a lot of relief from the reduction in the fuel pricing even though the national drop has not matched the global fall. (CarDekho)

There have been several changes in the Indian economy in recent times that directly have an impact on the automobile industry. One of those changes include the reduction in fuel prices while other is the increase in excise duty. Indian society has certainly taken a lot of relief from the reduction in the fuel pricing even though the national drop has not matched the global fall. However, that only reduces the cost of maintenance after buying the car but the price for buying has now increased with the government switching back to previous rates of excise duty which is now higher than what we had in the year 2014.

As far as the global crude oil price is concerned, a substantial 58% drop was witnessed with USD 112/bbl in June 2014 to USD 47/bbl currently. In the Indian context, the petrol prices have dropped from Rs. 75.1 per litre in September, 2013 to Rs. 62.3 per litre currently whereas in the same period, the diesel prices have fallen to Rs. 51.5 per litre from Rs. 59 per litre in September 2013.

graph-car

When it comes to ownership cost, fuel consumption is second only to EMI that goes to show how big of an impact fuel prices has on the market. There are solid numbers consolidated over the last five years to support this statement with the cost of ownership going up from 21 percent in 2009 to 27 percent in 2014. This has contributed to the 40 percent increase in petrol prices during the same period of five years. The ownership cost for diesel cars took a hit as well with an increase of 6 percent from 15 percent in 2009 to 21 percent in 2014. The reduced petrol and diesel prices will now affect the cost of ownership for the current period as well and that too by 10 percent for the former and by 8 percent for the latter.

However, the relief from the reduced fuel prices was tackled with brutal force as the government raised back the excise duty rate. The excise duty rates are back to their original values from the gratifying reduced values of 3 to 6 percent between February, 2014 to December, 2014. Therefore, auto manufacturing firms took steps to cover their cost and keep the margin up by increasing the prices. In terms of numbers, the increase in price for a typical compact car gone up by a margin of Rs. 17,000 to Rs. 20,000. This also increased the annual EMI cost by Rs. 2400 for a petrol variant and by Rs. 2800 for a diesel variant.

Earlier the difference in the cost of petrol and diesel variant of cars was quite remarkable that shifted the interest of the public significantly towards the latter since diesel cars were cheaper. However, the difference is now 21 percent compared to 72 percent in June 2012 that would swing the balance back in the favour of petrol cars. If experts are to be believed, the car sales for diesel variant would go down to 30-35 percent in the coming two years as compared to the formidable figure of 50 percent right now. This is obviously considering there is no change in the taxation policy and the rules remain the same for both petrol and diesel variant.

The heat of increased excise duty rates would be felt more by the big guns who produce low volumes at premium prices. It would be interesting to see how the auto manufacturers make changes in their strategy in coming times.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.