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Journalism of Courage
Buyers of cars and two-wheelers are unlikely to get the benefit of reduction in corporate taxes, as industry executives, including Maruti Suzuki chairman RC Bhargava and Mahindra & Mahindra managing director Pawan Goenka, believe there is not much scope for price cuts, given that discounts are already at an all-time high.
They, however, expect sales to pick up during the festival season as the uncertainty around the GST cut is over, because of which consumers were postponing purchases. Bhargava said the amount of money available from tax cuts is not very substantial and will not matter to consumers even if it is passed on. “Discounts offered today on cars have never been offered before, they are at the highest levels. There is little scope to cut prices further as the effective tax savings will not be much,” Bhargava told FE.
Goenka believes even if the company transfers all of the tax benefits, the price of the vehicle will only be reduced by 0.5 per cent, which would not improve demand. “Most companies, including M&M, have already given significant high incentives for the festival season. So, I don’t think there is any room for any further passing on of the tax benefit,” Goenka told a business news channel.
The automobile industry is going through an unprecedented slowdown since the second half of the previous fiscal. Wholesale witnessed its worst-ever drop in two decades in August with despatches across segments plummeting to an all-time low. As demand did not pick up despite high discounts, manufacturers had been demanding for a cut in taxes. However, the GST Council which met on Friday, refused to provide any major relief.
On demand improvement, Bhargava said expectation of a GST cut was affecting sales but it will pick up during the festival season as there is clarity now. “The FM’s announcement has done a lot to boost sentiments which can be seen through the performance of the stock markets. For vehicle purchases, sentiment is the most important factor. So, demand should be better now,” Bhargava said. Goenka believes demand was subdued so far due to poor sentiments in the economy. “Now that the expectation of a GST cut is out of the way, we will start seeing retails happening,” he said.
Rajiv Bajaj, MD at Bajaj Auto, expects that the company will be able to double its monthly volumes in October to about 4 lakh units. “There is good reason to believe that this will happen now because the general sentiment is up,” Bajaj said. —FE
