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Budget 2012: Which cars will cost more?

Last updated on: March 20, 2012 11:35 IST

Budget 2012: Which cars will cost more?

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Sharmistha Mukherjee in New Delhi

Your plans to bring home a dream vehicle may just have become a little more distant, with automobile manufacturers considering price increases to offset the impact of higher excise duty levied in the Union Budget.

Tata Motors, Toyota Kirloskar Motor (TKM) and General Motors are raising the prices of the products with immediate effect, while others like Maruti Suzuki India Ltd (MSIL) and Hyundai Motor India Ltd (HMIL) are determining the quantum of increase to be passed on to consumers.

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An MSIL spokesperson said: "We are evaluating the quantum of increase. The additional excise duty does not merely translate into a corresponding increase in the prices of our products, but also implies a rise in raw material prices. That would result in higher input costs. The cumulative impact is likely to be higher than the flat two per cent additional rate specified in the Budget."

Sources in the company, however, indicate that a price increase of more than Rs 3,000 is likely to be put in place by Maruti Suzuki.

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The Alto, the company's bestseller, is expected to become dearer by Rs 3,000-4,000, while the hugely popular premium hatchback Swift is set to be tagged Rs 10,000 higher.

The third-generation Swift, which Maruti Suzuki introduced in August last year, is currently priced between Rs 4,37 lakh and Rs 6.65 lakh (ex-showroom, Delhi).

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HMIL said it was considering raising the prices sometime next week.

Finance Minister Pranab Mukherjee raised central excise duty on cars with engine capacity of less than 1,200 cc to 12 per cent from 10 per cent earlier.

In keeping with the increase proposed in the standard rate, the duty on larger vehicles (with engine capacity of 1,500-2,000 cc) has been increased to 24 per cent from 22 per cent.

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"We have no option but to pass on the increase in the tax element on products to customers. But we are going to absorb the impact of a rise in input costs on account of the higher levy on raw materials. Margins will remain under pressure," informed P Balendran, vice-president (corporate affairs), General Motors India.

The company is increasing the prices of small cars - Chevrolet Spark, Beat and U-VA - by Rs 4,000-8,000; and those of sedans  - Optra, Cruze - and utility vehicle Tavera by Rs 13,000-35,000.

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The imposition of additional levies comes at a time when the industry has been battling slow sales on the back of high interest rates and fuel prices.

Passenger vehicle sales have grown by a meagre 2.95 per cent to 2.33 million units between April and February this financial year.

This is in stark contrast with the 30 per cent growth rate posted in the previous financial year.

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Abdul Majeed, partner and leader (automotive practice), PricewaterhouseCoopers (PWC), said: "The price increase in vehicles due to a rise in central excise will be in the range of three per cent. This should not slow sales sharply. However, if interest rates do not come down in the near future, it may prove to be a double whammy for the industry."

Sandeep Singh, deputy managing director (sales & marketing), TKM, said: "The additional burden of increased duty will directly affect the buyers and lead to a slowdown in sales." Toyota is raising prices of vehicles by 2-4 per cent.

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Interestingly, vehicles with engine capacity above 2,000 cc, which attracted a tax of 22 per cent plus Rs 15,000, will now be subject to switching over to an ad valorem rate of 27 per cent, according to the finance minister's Budget proposal.

An industry source said on the condition of anonymity: "Larger sedans like Maruti Suzuki SX4 would now be exempt from a duty of Rs 15,000, but be subject to an extra duty of 5 per cent. This will nullify the net effect on vehicles in this price bracket but will impact luxury vehicles considerably."

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Luxury automobile manufacturers - Mercedes, BMW, Audi - are assessing the impact of the proposal on the prices of their products.

They are also evaluating the impact of the increase in import duty on completely built-up units.

Imported cars, which previously attracted Customs duty of 60 per cent, will see a further rise of 15 percentage points.

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Indications are prices of such vehicles will go up by as much as Rs 3 lakh after levy of additional duties.

"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," said Audi India head Michael Perschke.


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