Auto dealers fret as festive season nears but GST rate cut promise awaits final nod

Vehicle dealers are keenly awaiting positive news after the meeting but some are worried about state governments holding out.

“>

The Independence Day promise by the Prime Minister, of a massive GST rationalisation which is expected to bring a bulk of the vehicles sold in the domestic market under the lower rate slab, has sucked up cheer from vehicle showrooms. Customers, especially in urban markets, are now awaiting the decision of the GST council–which is the final arbiter in GST matters.A bulk of the vehicles currently attract 28 per cent GST (bigger cars are also levied additional cess) currently and under the proposed rationalisation, the rate would come down to 18 per cent. This ten percentage point cut, if it happens, would translate into a 12-13 per cent price reduction across vehicle categories since other levies such as road tax, etc, would also get commensurately reduced. The total price reduction for an entry level two wheeler buyer, for example, could be nearly ₹10,000.So, while the promise of a lower GST was made on August 15 and a Group of Ministers (GoM) subsequently accepted the central government’s proposal for a two slab GST structure–5 per cent and 18 per cent slabs plus a special rate of 40 per cent for ‘sin’ goods–a final decision rests with the GST Council. The Council is scheduled to hold a meeting on September 3 and 4 this week. Vehicle dealers are keenly awaiting positive news after the meeting but some are worried about state governments holding out. There are indications that many states are unhappy with the revenue shortfall due to this proposed GST rejig (vehicle sales account for a large chunk of the tax revenue) and want to be compensated. Anyway, there is a likelihood that the GST Council meeting this week could conclude without any final decision, and perhaps reconvene later this month.This possibility is keeping OEMs and dealerships on tenterhooks, given that the navratri season is just round the corner and has traditionally been the period with robust sales across vehicle categories. Will the navratri period this year be a washout?

Initially, the cut will be passed on but over time, OEMs could undertake price hikes to reduce the quantum of these cutsTeresa John

Read at: As auto demand hits GST uncertainty bump, BMW’s incoming CEO urges clarity for EV momentum

Postponing purchases

Customers are making enquiries, say dealers, but postponing purchases in the hope of lower prices. Analysts at a Mumbai based brokerage said in a note that “While near-term domestic demand (for passenger vehicles) remains subdued, the companies expect gradual recovery driven by a favorable monsoon, the upcoming festive season, and supportive government measures (like income tax relief), lower interest rates, and proposed GST tax cut.”A southern Hero MotorCorp dealer said that inventory levels are already 75 days against the normal 30 days, as the OEM has been stocking dealerships in hope of bumper sales but customers are postponing purchases. “We expect clarity on the GST issue before the Navratri season begins,” this dealer said. Ashish Pande of Om Auto Honda in Bhopal, said the inventory at his dealership is already very high, at over two months of vehicle stock. He also spoke of input tax credit woes due to impending GST rate rationalisation, saying claiming input tax credit would be a tall task.

Also Read: Auto industry sounds the horn against higher slab on premium EVs

“About 8-10 per cent of customers have postponed purchases…dealers will have to adjust prices as soon as the notification comes. If the government says the new GST rates are applicable with immediate effect, then cuts will have to be passed on to the consumer from the very next day”.

An eastern India based dealer for Mahindra & Mahindra, which sells bigger four wheelers, said that the company has stopped billing since mid August for vehicles which currently attract 20-22 per cent cess (over and above the GST rate of 28 per cent). There is an expectation that the hefty cess levied on large cars could either be completely removed or lowered, in addition to moving most vehicles to the lower 18 per cent GST slab. This dealer said the OEM has asked dealers to stock the Scorpio, Thar Roxx and other popular brands only if there is demand

Teresa John, economist at Nirmal Bang Equities, said that in the short term, urban areas are aware of the GST rate cut in the pipeline so some purchases may be postponed and festive season sales may be impacted. John also said that the OEMs have no option but to transmit the entire rate cut (when it happens) to consumers. “Initially, the cut will be passed on but over time, OEMs could undertake price hikes to reduce the quantum of these cuts,” she said.

A Maruti dealer said that sales of small cars (under four meters in length and 1200 cc petrol or 1500 cc diesel) were already impacted as the market had shifted to SUVs but now, after the GST rate cut uncertainty, even SUVs are selling at discounts for up to 5 per cent. Ditto for entry level bikes, where again discounts are being used to lure customers to showrooms

Join the community of 2M+ industry professionals.

Subscribe to Newsletter to get latest insights & analysis in your inbox.

All about ETAuto industry right on your smartphone!

• Download the ETAuto App and get the Realtime updates and Save your favourite articles.