Following Finance Minister Pranab Mukherjee’s Budget announcement on Friday hiking excise duty, almost all major carmakers have begun increasing prices of their vehicles.
Those manufacturing luxury sedans and sports utility vehicles (SUVs) are still to finalise the quantum of hike they want to pass on to their customers due to customs duty hike on imported cars.
Carmakers who were first to announce a hike included Hyundai and Toyota, while others like Maruti Suzuki, Tata Motors, General Motors, Honda, Ford and Mahindra & Mahindra were "studying" Budget proposals before finalising the hike. Similarly, luxury carmakers like BMW, Mercedes and Audi will also likely announce price increase “soon”.
Hyundai said the range of price hike in their cars would be between Rs.5,000 for entry level hatchback Eon and Rs.80,000 for SUV Santa Fe, while in case of Toyota it would be from Rs. 9,500 in Liva to Rs. 80,000 SUV Fortuner. Significantly, the hike in prices of imported luxury cars and SUVs could be in lakhs due to step increase in customs duty.
The reason for the companies taking time in hiking car prices is due to the confusion over categorisation of cars for imposing duties. For instance, duty on large cars (sedans) has been hiked from 22 per cent to 24 per cent; and in case of cars that attract a mixed rate of duty of 22 per cent plus Rs.15,000 per vehicle an ad valorem rate of 27 per cent will be imposed. "We want to be sure about the definition of 'large car' before announcing the hike," said a senior official of a leading carmaker.
Similarly, customs duty on completely built large cars and SUVs of value exceeding $40,000 (around Rs.20-lakh) has also been hiked from 60 per cent to 75 per cent. Further, the car manufacturers want to factor in the impact of the hike in customs duty on the 'flat-rolled' steel from 5 per cent to 7 per cent before hiking prices.
But one message is clear - the auto industry is "disappointed" with hike in excise and custom duty. "The increase in excise duty will hurt automobiles, at a time when industry is in the midst of a slowdown due to the combined effect of high interest rates and high fuel prices," said Maruti Suzuki Managing Director and CEO Shinzo Nakanishi.
Toyota Kirloskar Motor Deputy Managing Director (Sales and Marketing) Sandeep Singh said: "A rise in excise and import duty and input costs will not be very conducive for the auto industry as the additional burden of increased duty will directly affect the buyers and hence would lead to slowdown in sales…we have no choice but to pass on the price increase to the consumers. The average increase in price ranges from 2 to 4 per cent."
Ford India President and Managing Director Michael Boneham said: "The announcement of a 2 per cent increase in excise duty is disappointing and not favourable towards the auto industry. This will lead to increase in prices of our products and will have negative impact on consumer confidence.”
According to Audi India Head Michael Perschke, "The increase in excise and customs duty on large cars in this budget is very surprising. This increase comes at a time when the Indian automotive industry was finding favour with customers looking for better and efficient cars. We may now need to re-evaluate our pricing strategy in India."
The Automotive Component Manufacturers Association of India (ACMA) said enhancement of excise duty would adversely impact the prices of vehicles and in turn their consumption. “This is of concern to the auto component sector as the sector grows in tandem with the vehicle industry,” said ACMA Executive Director Vinnie Mehta.