Friday, 16 March 2012

Impact of 2012 Budget on Indian Auto Market: What to Buy & Why?

The news for the Auto Industry is mostly good and arguably bad.

Good because the fears of the duty hike on Diesel vehicles have proven unfounded and the technology led intervention pricing towards fuel conservation and environment friendly small vehicles continues.

Arguably bad, because there is an across the board hike in excise duty from 10 to 12 per cent, the impact of which on price increase will be marginal.

The share prices of Auto manufacturers Tata Motors, Mahindra & Mahindra, and Maruti Suzuki have all since registered an upward trend given the budget direction.

February car sales had seen a steep spike especially in Diesel vehicles before the budget.

This has however proven a mistake in posterity, as neither have the prices of Diesel been increased, nor has the Government imposed a Diesel cess or tax demanded by Oil Marketing companies and environmental groups, proposed to the tune of Rs. 81,000 on diesel cars.

This will on the one hand see a continuation of the trend of increased sales in the last few years towards Diesel cars, Mini SUVs, SUVs and the lately popular crossovers, and on the other hand be a positive trigger for the investment plans by auto manufacturers. The apprehension of a Diesel Tax had put an eclipse on the investment environment of new plants to meet the surging Diesel vehicle demand until the policy flip flops over diesel were resolved.

Now what this means for the car buying consumer in terms of price is that Excise duty on small cars under 4 meters in length with petrol engine capacity of below 1200CC or Diesel engine capacity of below 1500CC will fall attract an excise duty increase of 10 to 12 per cent. The Maruti small cars like Alto, Swift, the Hyundai i10, and Honda Brio will get very marginally pricier.

The Excise duty on large cars measuring above 4 meters in length and having petrol engine capacity of over 1200CC or diesel engine capacity of over 1500CC has been increased from 22 to 24 per cent. Sedans like the Ford Fiesta, Honda City, Volkswagen Vento and Hyundai Verna will see a small price increase.

The Excise duty on MUVs and SUVs has been changed from 22 per cent + Rs. 15,000 to a flat 27 per cent. This will impact the prices of Mahindra Scorpio, Tata Safari, as well as those of Mahindra Thar, Bolero, Tata Sumo, Force Motors Trax, which will see an increase.

The news is bad for those in the market for imported CBU SUVs costing over USD 40,000 that saw excise duty, go up from 60 to 75 per cent. This will impact Audi, BMW, Volkswagen, Volvo, Toyota, Renault and other foreign automakers very negatively. This will favour domestic luxury SUV makers like Tata Aria, and the Mahindra XUV500.

The exemptions towards R&D and eco friendly hybrid and electric vehicles also continue, which needs to be encouraged in an era of insane crude oil as energy security becomes more important every day.

Clearly the move towards Diesel based cars under 4 meters with an engine less than 1500CC will be the high growth segment, besides of course the ubiquitous small car. This will mean increased competition in the small car market; better functionality like ABS, climate control, automatic gear boxes in the same price category.

This budget also means a renewed demand surge for mini SUVs with monocoque bodies like Ford Ecosport, Renault Duster, Premier Rio, and Mahindra Mini Xylo, among many others. In keeping with this theme expect a similar mini or compact SUV from the Maruti Suzuki stable. This will as a corollary push domestic manufacturers to upgrade and invest in smaller engines with similar outputs, and better quality bodies and ergonomics, in keeping with global competition.

If you are the weekend warrior or someone that is required to drive on rough and broken roads across India’s rural landscape, mountains and jungles, the finance gods have been kind. This is the vehicle for you!

The Indian Auto Industry overall is unlikely to be affected, if anything Pranab Mukherjee’s otherwise insipid Budget of 2012, will increase investment, and promote fuel efficient, contemporary technology in the Indian auto market.


Unknown said...

This blog is good source of market information as well as helpful for automotive market research.thanks for sharing..
Car Bazaar

Play angry Birds said...

Very informative article ..Keep posting more article...Thanks

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