Union Budget: Imported cars, bikes to get costlier

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The Union Budget was a bit of a dampener for the automotive industry as a whole. The market had experienced a bit of a downturn in the past year, and many had expected a bit of relief from the Finance Ministry. Unfortunately, nothing of the sort happened. In fact, customs duties and excise rates only increased.
 
Announcing the Union Budget 2013-14, finance minister P Chidambaram has proposed 100 percent custom duties on high-end luxury cars, up from the current rate of 75 percent. These 'high-end' cars are defined as those having a CIF (Cost, Insurance and Freight) value higher than US$ 40,000 (Rs 20 lakh) and/or an engine capacity exceeding 3000cc for petrol and 2500cc for diesel. This means, for example, that imported cars that currently cost about Rs 1 crore will cost approximately Rs 30 lakh more. 
 
Luxury car manufacturers like Audi, BMW, Mercedes-Benz, Jaguar and Volvo, which import a significant number of models as CBUs, will be hit by this steep 25 percent hike in customs duties. Imported supercar brands such as Ferrari, Lamborghini and Porsche will be affected too. Sales of overall luxury vehicles in India could also be marginally affected following the surcharge of 10 percent on annual incomes of over Rs 1 crore. At present, this vehicle segment accounts for less than 3-4 percent of total industry sales.
 
What's more, the customs duty for motorcycles with engine capacities above 800cc has gone up from 60 to 75 percent. Honda, Yamaha, Ducati and BMW Motorrad expect prices for their 800cc-plus motorcycle models to rise in the near future, with exact pricing and dates to be announced. Suzuki has meanwhile stated that it will absorb the higher duties without increasing superbike prices and passing the burden on to customers for now. Harley-Davidson India is evaluating the customs hike on its CBU units and plans to increase its focus on CKD operations to build more affordable motorcycles for Indian buyers.
 
The finance minister said that the exemption of customs duties on components for electric vehicles and hybrids will be continued till fiscal year 2014-15. In what has come as a big relief for passenger car manufacturers, the Budget did not propose any tax on diesel-engined cars.
 
He also proposed an excise duty hike on locally assembled UVs and SUVs, from the existing 27 percent to 30 percent. the government's definition of an SUV being a car over four metres long, with an engine capacity of over 1500cc and ground clearance greater than 170mm. This translates to customers shelling out approximately Rs 25,000-40,000 more for popular cars such as the Mahindra Scorpio, Tata Safari and Toyota Innova, while a premium SUV such as a Toyota Fortuner is expected to be dearer by approximately Rs 70,000. However, it should be noted that this hike will not apply to UVs and SUVs registered as taxis.
 
This also means Compact SUVs (under 4m in length) will remain in the excise duty slab of 12 percent, which is good news for the Mahindra Quanto and the upcoming Ford EcoSport.
 
Industry reactions:

Lowell Paddock, president and MD, GM India, feels that the industry did not get the recognition it deserves in the Budget. He feels the industry, which is in “doldrums”, deserves stimulus. He, however, added that the Budget will not adversely impact GM’s investments in India. He also welcomed the extension of the concession on import of components for hybrid and electric vehicles.
 
Joginder Singh, president and managing director, Ford India, says, “We welcome the focus on infrastructure development, social benefits for inclusive and sustainable growth in the country. The investment allowance to boost the manufacturing sector is a positive move. The automobile industry is a significant contributor to India’s economy and future growth potential. We are disappointed that there is very little in the Budget that will help boost consumer confidence and revive growth. It is a missed opportunity to introduce measures that would have revived industrial growth significantly. The automotive industry has been going through very challenging times and we are disappointed with the increase in the excise duty for SUVs.”
 
Michael Perschke, head, Audi India, says, “The increase in custom duty for imported cars and excise duty on SUVs is very surprising. It will severely impact the auto industry and its growth. We will have to seriously evaluate the impact of this hike on our prices and have no choice other than to pass on the increase to the customer. Overall, it will have an adverse impact on the automobile industry which is already going through a slowdown and specifically affect demand including that of SUVs. Currently, the industry is facing pressure from a number of factors and the government should have looked at extending support to it.”
 

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