Budget News: Excise duty hike to pinch auto buyers as prices go up

Moneycontrol Bureau

Get ready to pay more for automobiles as the excise and customs duty has been hiked in the Union Budget 2012-13. While basic excise duty goes up to 12% from 10%, that on large cars has been raised by 2% to 24% earlier. Customs duty for completely built units (CBU) of large cars and SUVs imported in to India, which cost over Rs 20 lakh, will go up to 75% from 60%. Automobile companies had already said that any increase in duties would be passed on to customers. First to announce a price hike was utility vehicle maker Mahindra & Mahindra. Pawan Goenka, President of M&M's auto and farm equipment division, said on CNBC-TV18 that the excise duty hike was on expected lines and would have to be passed on to customers. Price of M&M vehicles go up by Rs 3,000-35,000. Other auto makers have also followed suit and raised prices as none of them want to take on the additional tax burden. India's top car maker Maruti Suzuki, Japanese rivals Honda and Toyota, General Motors all are raising prices. Honda's Brio gets expensive by Rs 7,000 and luxury Accord sedan by as much as Rs 60,000. Auto makers were irked by this excise duty hike as many feel the resultant price hike will further deter customers from buying vehicles and thus only add to the slowdown, which has hit the industry, particularly passenger cars, over 2011-12. Between April-December, car sales slipped 2.5% due to expensive loans and a sharp hike in petrol prices, although there was pickup in Jan and Feb as customers rushed to book their vehicles in anticipation of the excise duty hike in Budget. Society of Indian Auto Makers has forecast car sales in India will grow at best 2% this fiscal year, which ends on March 31. "A rise in excise & 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. CBU prices will also be affected on account of a rise in customs duty. (But) we have no choice but to pass on the price increase to the consumers," said Sandeep Singh, Deputy MD, Sales and Marketing, Toyota Kirloskar Motor. The company has raised prices by Rs 9,500 for its petrol powered Etios Liva hatchback to as much as Rs 80,000 for its Fortuner SUV. The average price hike is 2-4%, Singh said. Audi India also said it will have to re-evaluate its pricing strategy in India. However, automakers have heaved a sigh of relief that the Finance Minister didn't announce any tax on diesel. Several experts had said that government should tax diesel vehicles or impose a tax on diesel used for private cars to offset some of the losses of oil marketing companies. The Kirit Parekh Committee on Energy had justified such a tax saying 15% of India's diesel was consumed passenger vehicles. However, SIAM has insisted that diesel used by private vehicles is less than 2% of total. The Finance Minister now seems to have listened to the auto makers, who had lobbied hard against such a move. Demand for diesel passenger vehicles has surged during the last one year as petrol prices were hiked several times. The street too cheered the fact that there was no additional tax on diesel vehicles, sending shares of many auto makers surging. Maruti Suzuki shares hit a 52-week high of Rs 1,428.95 on NSE on Friday. It closed at Rs 1,374.35, still up 0.6%. Among other stocks, M&M ended up 3%, Eicher Motors and Ashok Leyland closed up 2.5% and 1% respectively. Many other stocks, however, saw some correction in late trade to  close down around 0.5%. Nachiket Kelkar
nachiket.kelkar@moneycontrol.com