NEW DELHI:

For Indian carmakers, the introduction of the goods and services tax (GST) could be a speed-breaker on the growth highway but the bumpy ride should be a short one. Local car sales have motored along a steady growth path in FY18 with demand having risen in double digits.

June, however, could see a fall of up to 8 per cent, with dealers refusing to stock up until July 1, when GST will be rolled out.

The idea is to cut down on likely losses in input credit on various levies that will be replaced with a single indirect tax. While demand for Maruti Suzuki’s wait-listed models may mitigate the decline, most executives acknowledge a transitory impact ranging from 5 per cent to 8 per cent.

"There are challenges in the wholesale business, and manufacturers are restricting shipping vehicles to dealers as they would lose out on tax credits," said a top executive at a Delhi-based carmaker.

"The government has made provisions for refunding excise duty on unsold stocks beyond July 1, but there is no provision for refunding central sales tax, infra cess and national calamity contingent duty."

Financial support
The cumulative impact of losses on these levies on which credit can’t be sought amounts to anywhere between 3 per cent and 7 per cent of the cost of a vehicle. Most companies have promised dealers financial support to tide over the transition, but the effort at the points of sale is clearly to liquidate stock.

According to industry estimates, there are more than 300,000 vehicles waiting to be sold. "Given the financial impact, all carmakers have announced discounts to clear stocks to the extent possible during the month.

We estimate wholesale numbers will drop by 6-8 per cent in June," said a second executive at a rival carmaker. Among peers, Maruti Suzuki seems to be the only company which is placed better in terms of inventory.



"Maruti Suzuki has several models on waitlist, be it Baleno, Brezza, DZire, Swift or WagonR," said a senior executive with an industry association. "Customers are picking up cars upon delivery. The company is being able to bill vehicles to dealers." VG Ramakrishnan, the managing partner at Avanteum Advisors LLP, is more cautious, however.

"Even if Maruti Suzuki ramps up, passenger vehicles wholesale are likely to drop by 5-7 per cent in June as most manufacturers and dealers want to clear existing stock."

The company is operating on a low base as production was disrupted last year due to a fire at vendor Subros and it also had a scheduled annual maintenance shutdown last week.

The lack of clarity on consumer prices post-GST is hurting the effort to clear inventory. "Customers are postponing their plan until the GST rollout. This impact would be bigger in June… Toyota Kirloskar Motor has taken a conscious decision to lower the volumes of vehicles sold to dealers this month," said N Raja, senior vice-president and director (sales & marketing) at Toyota Kirloskar Motor (TKM).

Ford India managing director Anurag Mehrotra concurred: "There is certainly uncertainty in the market on vehicle pricing… The long-term roadmap remains intact."

 21 Jun 2017, 06:48 AM