Interim Budget: Your dream car may come with a cheaper price tag now

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Kankana Roy Choudhury

Moneycontrol.com

Finance Minister's decision to cut the excise duty in the auto sector has brought cheers for the market players, who, in turn, are deciding to pass on the benefits to customers.

The move has offered a much-needed stimulus to the ailing auto industry, which is reeling under high input and interest costs and slow recovery.

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Taking a cue from FM's speech, both Tata Motors and Maruti Suzuki are planning to lower the prices of vehicles with immediate effect.

Tata Motors is planning a price cut starting Tuesday. The company expects the auto industry to show positive signs of turnaround in the next 3-6 months.

Tata Motors is hopeful that the level of deceleration may be arrested post excise cut.Sales of utility vehicles have been badly impacted in FY13.

Maruti Suzuki said that a significant price reduction will spur a revival in the sector. The company sees the 6 percent cut in the SUV segment as a big positive and hopes this will help bring the industry out from the negative trend. The company hopes that the new government retains the current numbers.

Commercial Vehicle maker Ashok Leyland said though the excise duty cut will lessen the burden on operators, CV demand will remain subdued on low freight availability.

The company, which posted a net loss of Rs 167 crore against a profit of Rs 74.2 crore (Y-o-Y) in its third quarter due to very low volumes, high discounts and high interest and depreciation cost, does not see a turnaround in the CV space unless the economy picks up.

Pawan Goenka, ED & President- Automotive Sector, Mahindra and Mahindra (M&M), said that he was not expecting all these measures for auto sector. The company, which holds a substantial share in the SUV space, said it expects around Rs 40,000 reduction in prices.

Goenka said that if the excise reduction continues, it will be good for demand.

In his Interim Budget, P Chidambaram announced excise duty cut across the board in the automobile sector. He has reduced the excise duty on SUVs to 24 percent from the current 30 percent. The excise duty on small cars and commercial vehicles has been revised to 8 percent from 12 percent and that of large & mid- segment cars to 20 percent.

Crisil rates the decision as marginally positive in the near term.

At the recently-concluded Auto Expo, Minister for the Heavy Industries and Public Enterprises Praful Patel had said that he has written to Finance Minister seeking stimulus for the beaten down auto sector.

In his letter he had asked an excise duty cut on commercial vehicles from 12 percent to 8 percent with immediate effect, he said. Quoting a degrowth of 6 percent for passenger vehicles and 27 percent for commercial vehicles, Patel added that the sector is in dire need of stimulus in order to prevent it from slipping into further worsened situations.

According to S Shandilya, Former SIAM Chairman, though the announcement is a positive, but it is not permanent. As the Interim Budget is presented till June, before the new government comes into power.

"We need to ensure that the incoming government also kind of maintains it otherwise it is very difficult. However, having said that the reduction is far more than what we expected which is a positive thing in all segments, CVs, cars, two-wheelers and also in the case of capital goods, which is again good, commercial vehicles, which is positive. However, the fundamental thing is economy should grow," he told CNBC-TV 18.

Shandilya said that in the next three weeks there will be some boost in demand. "It will advance the sales because people may feel uncertain about what will happen in June," he added.

Though the decision is undoubtedly beneficial in the short-term, but it is yet to see for how long and to what extent will carmakers be able to pass on the benefits to the consumers!