Impact of Union Budget 2010 on Auto Industry

The 2010 Union budget is not very exciting for future car and bike buyers. Nor is it any good news for current car or bike owners. The Government has increased the excise duty by 2%, translating into small cars attracting 10% excise duty and bigger cars will now have to pay excise duty at 22%.

Major automobile-makers – including Maruti Suzuki, Tata Motors, Honda, General Motors and Hyundai – have announced plans to raise the prices of their vehicles by up to Rs 41,000.Manufacturers of two-wheeler such as TVS Motors and Hero Honda followed suit, by announcing hike in prices of their products.Tata Motors, the biggest automaker in India, will jack up the prices of its vehicles following the increase in the excise duty, according to P M Telang, the company’s managing director for domestic operations.Telang said Tata Motors is likely to raise the prices by Rs 60,000-Rs 70,000 for its heavy vehicles, and by Rs 5,000-Rs 6,000 for the smaller vehicles. The company will pass on to the customers any fiscal duty changes effected by the government, he added.

In a statement Maruti Suzuki India announced that it will increase the prices of its models, ranging from Rs 3,000 to Rs 13,000 (ex-showroom, Delhi) from the midnight of February 27, 2010.TVS Motors, based in Chennai, said the prices of its models will go up by Rs 350-Rs 1,200.

The prices of models from General Motors are to be raised by Rs 6,200-Rs 22,000.Hyundai Motor India is to raise the prices of its vehicles by Rs 6,500-Rs 25,000.As for Honda Siel Car, the price hike will be between Rs 13,000 and Rs 41,000 from February 28, 2010.

The industry will be compelled to pass on the extra excise duty to the consumers, according to General Motors India president Karl Slym.In the two-wheeler sector, Hero Honda, the biggest company in India, said it has decided to jack up prices by Rs 500-Rs 1,500 across all of its models.Two-wheeler maker Bajaj Auto said the company is considering raising the prices of its products.

It was with mixed reaction that India’s automakers received the Union Budget. They described the increase in excise duty to 10% and the hike in the prices of petrol and diesel as “possible dampeners” for the automobile sector.Though in general the automakers termed the Budget as a “positive and growth-oriented one,” a majority of them said they did not expect any increase in the excise duty and also duty on petroleum products.

Pawan Goenka, president of the Society of Indian Automobile Manufacturers (SIAM), said the automakers did not anticipate the rollback of 2%excise duty, which will adversely affect the auto industry. The continuation of the stimulus packages, according to Pawan Goenka, would have helped the automobile industry in India regain its momentum of growth.

In the opinion of Rajeev Kapoor, president and CEO of Fiat India, the Budget is “futuristic” and it addresses the long-felt need to rationalise direct taxes and indirect taxes.Though the lowering of the income tax rates, according to Rajeev Kapoor, will allow higher disposable income to individuals, the increase in price of petrol and diesel will hurt the consumers.

R Seshasayee, managing director of Ashok Leyland, said the rollback of the excise duty was “very much along the expected lines.”

About 1.22 million cars were sold in India during April 2009-January 2010 – which was a 25% growth over the same period one year before.Sales of utility vehicles went up by 22% to 219,250 units, and a total of 7.61 million two-wheelers were sold in India during April 2009-January 2010 – a 24% increase from a year ago.

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Business Standarsd 28.2.2010

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