Almost three months after the roll-out of the goods and services tax (GST), the new car market may have recovered volumes both on the wholesale and retail ends but volumes in the used-car market — especially from organised retailers — have decreased substantially due to the significant rise is taxes. As per industry executives and dealers, volumes have declined by 15-20%. Prior to the implementation of the GST, used or second-hand cars used to attract 5% value-added tax while after GST, dealers have to pay the same taxes a new car in the same category attracts on the profit margin. Hence, the price a customer has to pay has increased significantly compared with the pre-GST level.
According to Nagendra Palle, CEO, Mahindra First Choice Wheels, one of the largest organised retail used-car sellers, GST for used cars should be at 10-12% rather than the current rates, which start at 28%. “Our volumes have softened by 10-15%. The impact has been less as our product mix largely includes small cars. GST is quite negative because it is the same as for new cars. Hopefully, this rule is revisited,” added Palle. According to market sources, volumes at Maruti True Value, the used-car arm of the country’s largest carmaker by market share, have been hit by 15-20% as well.
“Our business has been down by almost 20% since the implementation of the GST since we have passed on the increase in taxes to the customers. When we buy a car from an individual, we spend to get the car refurbished and, subsequently, add a profit margin, which now attracts taxes as high as the new ones. So this has kept customers at bay,” said a dealer of Maruti True Value in New Delhi. The used-car market stood at 3.6 million units in 2017 compared with 3.8 million in the year before. Last year, after demonetisation, the market declined by 6%. Volumes in the organised segment increased by 36% last year, indicating a clear shift of buyers towards organised retailers where finance is also available.
“Used vehicles continue to attract a GST rate equivalent to new vehicle rate, thereby substantially increasing tax on trade of used vehicles through organised business,” Society of Indian Automobile Manufacturers (SIAM) noted in its second-quarter presentation. According to an analyst with a foreign brokerage, volumes in the segment are down by more than 20% as taxes have become substantially high. What compounds the GST impact is that the market needed time to recover from the demonetisation shock. Unless the taxes come down, there is no hope of a recovery, SIAM noted.
Usually, the used-car market is bigger than the new car market by 1.2 times but the adverse effect of demonetisation reduced it to just 3.6 million units compared with 3.2 million units of the new car market as a substantial part of the transaction in this segment is cash-driven.