Carmakers have stepped in to bear part of the compensation cess burden that auto dealers are saddled with after the GST 2.0 announcement.

Sources from the dealer community said Mahindra & Mahindra (M&M), Volvo Cars, JSW MG Motor, Tata Motors and Toyota Kirloskar have agreed to take a part of the financial burden, which is collectively valued at an estimated Rs 2,500 crore on an inventory of 600,000 units.  

“Most original equipment makers (OEMs) are on board to help dealers get out of this situation to ensure we metal out the stock that we have on high-cess cars,” a senior executive of the Federation of Automobile Dealers Association (FADA) told FE.

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GST cuts to 18% on small cars

The government has announced a reduction of GST on small cars from 28% to 18%. While the cess on small cars is 1% or 3%, the same on all remaining cars is between 15% and 22% in addition to the GST which will now be at 40%.

“If we don’t liquidate the cars before September 21, the hanging sword will come down heavily on us. As of today, there is no one from the government who is giving us any solution on it,” said the executive.

Explaining the relief measures, a dealer said that the margin for the dealer on a car costing Rs 1.25 crore is 5-6%, translating to Rs 5-6 lakh. The OEM partner is ready to pitch in a further Rs 4 lakh, pushing the kitty to Rs 10 lakh only to make sure the customer buys immediately instead of a date post September 21.

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Dealers flags concern on high-cess cars

“It is not the small cars that are bothering the dealers, the problem is high-cess cars on which the cess ranges from Rs 2.5 lakh to Rs 14-15 lakh. Today, there is more of a panic selling,” a dealer of Volvo Cars said.

Sources said small car heavyweight Maruti Suzuki and Hyundai have so far not come forward to participate.

Speaking at the 7th annual auto conclave hosted by FADA, Shailesh Chandra, MD, Tata Motors Passenger Vehicles and Tata Passenger Electric Vehicles, who is also SIAM president, said: “At SIAM, we are fully cognizant of the concern regarding the compensation cess lying in the books of the dealers and SIAM has already represented the matter to finance ministry. We are very hopeful that a resolution will be achieved to tide over this issue.”