[GTO]

First, the good news:

The much-hyped additional taxation on diesel cars didn't go through. Everyone expected prices to increase by Rs. 50,000 - 80,000 minimum for the mainstream diesel cars. In fact, the market was so petrified that auto sales in February 2012 were the highest ever (Link to Thread). Head honchos were understandably worried, what with sales getting hammered by a laggard market, stratospheric petrol prices and ever-increasing interest rates. So, why were diesel cars not taxed?

- Personal vehicles actually account for a minority consumption of diesel fuel in India.

- The Indian Auto Industry is a significant contributor to the growth of our country (taxes, labour, investment etc.).

- Indian cars are already heavily taxed. Depending on what segment you are looking at, over 40% of the car's retail price consists of local, state & central taxes.

- The industry is currently reeling under immense pressure from the economy, fuel prices & interest rates. Growth has especially slowed down over the last 3 quarters.

- The Auto Industry Lobby in New Delhi

So relieved was the market that share prices of Maruti, Tata Motors & Mahindra ended on a high note today!

[GTO]

The Flip Side:

On the other hand, you can expect car prices to go up tonight, across the board. Manufacturers have announced that they will be passing on the entire excise hike to the customer. Do note that excise is applied at the factory gate; thus, if your car is already in transit (or at the dealership), the old rates apply to your purchase.

Small Cars
Less than 4 meters in length and with engine capacity smaller than 1.2L (Petrol) / 1.5L (Diesel)

New Excise Duty : 12%
Old Excise Duty : 10%

Who? This category primarily consists of the hatchbacks. Thus, cars from the Tata Nano & Maruti Alto to the Maruti Swift & Hyundai i20 will see an excise increment of 2%. Expect price hikes in the range of Rs. 5,000 - 6,000 for a Santro, and upto Rs. 20,000 for some of the premium hatchbacks. Two compact sedans - the Maruti Dzire & Tata Indigo CS - also fall in this category of lowest excise duties.

Medium-sized Cars
Over 4 meters in length, but with engines smaller than 1.5L (Petrol or Diesel)

New Excise Duty : 24%
Old Excise Duty : 22%

Who? Primarily the C1 & C2 segment sedans, right from the Tata Manza & Toyota Etios to the Honda City & Fiat Linea. The Renault Fluence & Toyota Altis, with their puny diesel engines, fall into this category as well. On the other hand, the 1.6L sedans are bumped up into the higher slab (below). Price hikes of Rs. 12,000 - 20,000 are expected in the C1 & C2 segments.

*NOTE*: This Government clarification clearly states that all cars <1500 cc will be taxed @ 24%, while cars >1500 cc will be taxed @ 27%. There was some confusion earlier on this topic.

Large Cars
Over 4 meters in length, and with engine size larger than 1.5L (Petrol or Diesel)

New Excise Duty : 27%
Old Excise Duty : 22% + Rs. 15,000 (fixed duty)

Who? Some 1.6L sedans like the ol' Ford Fiesta, Hyundai Verna 1.6, VW Vento, Skoda Rapid & Maruti SX4 (petrol) now have to shell out 27% excise! Get this, the VW Polo 1.6 falls in the same excise slab as the Mercedes E-Class. This gives the 1.5L sedans (like the Honda City & new Ford Fiesta) a competitive advantage. The category goes right up to the Honda Accord & Toyota Fortuner who should witness a tag heftier by about Rs. 70,000 - 80,000. The C-Class & A4 also got more expensive by Rs. 1.5 - 2.0 lakhs, while the S-Class & 7-Series shoot up by about 5 lakh Rupees. The SIAM (Society of Indian Automobile Manufacturers) commented that no one expected additional duties on large cars. President Sandilya added that the SIAM actually expected excise duties to be reduced on this category of vehicle!

CBUs (Fully Imported Cars):

New Basic Customs Duty : 75%
Old Basic Customs Duty : 60%

Who? All the imported sedans, coupes, SUVs & MUVS; cars like the VW Beetle & Porsche Cayenne to the Rolls Royce Phantom & Lamborghini Gallardo. Indeed, a bad time to buy that Ferrari 458 you were saving up for. The effective import duties will now be in the range of 135%. Personally, I'm very pleased with the tax hike on imported cars. You want to sell it here? Well, build the damn car here!

All luxury car makers termed the budget as disappointing.

Hybrid & Electric Cars

The Excise duty on replacement batteries has been reduced from 10% to 6%. Further, the excise duty on other "specified parts" of hybrid vehicles have also come down from 10% to 6%.

[GTO]

Other Pressures:

The increase in service tax from 10% to 12% will negatively impact Industry costs (much like every other sector out there). Lastly, increased custom duties on flat-rolled steel from 5 to 7% will drive up the cost of raw material for Auto manufacturers.

The Effect:

- With higher taxation for all segments, a certain amount of slowdown in the Auto Industry is inevitable. Also remember that a 5 rupee hike in the price of petrol is just around the corner. It's a fight of the fittest, really.

- Expect investment in diesel engine plants to resume; some manufacturers had earlier put plans on hold.

Source: (Thanks to BHPian GenuineOptimist for the links)

Official Document 1

Official Document 2

[GTO]

Reactions from Industry Leaders

Mr. Michael Boneham, President and Managing Director, Ford

One of the clear takeaways from the Union Budget 2012-13 is the impetus it will provide to infrastructure development, with its focus on improvements in areas like the power sector and road network development. The stimulus to social sector is progressive and a welcome step towards development of the economy. We are also pleased with the Government’s decision about not levying extra tax on diesel vehicles as any additional tax would have been a regressive step. However the announcement of a 2 per cent increase in excise duty is disappointing and not favorable towards the auto industry. This will lead to increase in prices of our products and will have negative impact on consumer confidence. The increase in excise duty for large cars up to 27% (advelorum) is again not favorable though we are assessing its full impact on our product portfolio.

Dr. Pawan Goenka, President (Automotive), Mahindra & Mahindra

Specific to automotive industry, the industry is relieved that the FM did not take any retrograde step like imposing a tax on diesel vehicles. The excise duty hike was in a way expected and we will have to pass on the price increase to the consumer. However, with all the surcharges and special levies, the top excise duty rate is as high of 29%. I believe this is simply too high!

For Mahindra vehicles, the price increase would be as low as Rs. 3,000 to a maximum of Rs. 35,000 depending on the product category. On the tractor side, service tax and excise duty hike will also increase overall input cost and therefore an immediate increase of Rs. 3,000 – 5,000 is expected. We expect some short term negative impact on demand but with time we think it will wear off.

Other positive steps are extension of weighted deduction of R&D by five years, introduction of weighted deduction for skills development and reduction in taxes and duties for hybrid and electric vehicle components.

We do not expect any major depression in demand growth as a result of the budget and hence do not expect our investment plans to change.

Mr. Sandeep Singh, Deputy Managing Director, Sales and Marketing, Toyota

A rise in excise & import duty and input costs will not be very conducive for the auto industry as the additional burden of increased duty will directly affect the buyers and hence would lead to slowdown in sales. CBU prices will also be affected on account of a rise in customs duty.

We have no choice but to pass on the price increase to the consumers. The average increase in price ranges from 2 to 4%.

Mr. Neeraj Garg, Member of Board and Director, Volkswagen

The duties announced will definitely act as a growth deterrent for the overall auto industry. Moreover, it becomes difficult to plan our long and mid term strategies in such a volatile market.

[neo_trace]

What will happen to My Toyota Fortuner?
Which left fectory at 4 pm(15th march) and will reach to me on 17th,18th? Delivery will be on 18th,19th.
Dealer still dont have price increase info!
Am i still going to charged extra Duty ?
What a Luck !!!

[vinit.merchant]

Thanks GTO for the summary of the budget impact on cars.

Isn't this the ultimate feast for petrolheads with heavy discounts on new as well as used cars? Should we also call this the death of petrol sedans, more so for the > 1500 cc and the imported breeds? Absolutely, I feel.

Not sure where this is going and where it will end.

Edit: No wonder I received 3 calls from the maruti dealer today for the k10 enquiry I made a month back. They were desperate to sell me one.

[ethanhunt123]

Very dissapointed by the lack of additional duty on diesel cars. Instead of screwing only the petrol car owners / petrol heads, government had a charge to level the playing field. I am sure furious lobbying by Auto companies led to this.

[shivasuma]

oh man, there goes my plan of buying the Jetta. It was already overpriced, but now its just way too overpriced. Ok, now back to Cruze (wife will be happy, she liked the cruze over the Jetta). Hopefully there will be some discounts offered.

[Turbokick]

I can see Honda City benefitting from this move in C segment. And maybe the new Fiesta,SX4 and Linea will see some jump in demand for their diesel models thanks to their lesser duty compared to Rapid,Vento and Verna.

There is a good chance of manufacturers absorbing the tax incase of petrol cars and passing it on incase of diesel models.
Things will get even more complicated now.

[tanwaramit]

Thanks for the detail on the excise as implemented. I guess, this will be implemented from 01st April 2012.

I can see the cases of pre-worshipped cars rising more. It makes more sense to go preworshipped way.

Are the auto manufacturers announcing price rise in the month of March itself ?

[anjan_c2007]

The lack of consistency by the policy makers (mainly bureaucrats) is too alarming. Firstly, you define a small car using some not so well acclaimed norms and then levy differential central excise duties on two categories of cars viz. 10 and 22 %. There is a third category of the larger cars that is levied the same 22% plus a levy of Rs 15,000=00. So far so good.
The auto manufacturers have been making all sorts of designing modifications to derive the best out of such levies. In some cases like the Indigo CS, the customers have benefited. The new, shortened DZire does not pass on the reduced central excise duty (earlier 10 % and now 12%)to the buyer, though.
But there is a recategorisation now that puts the 1.6 L sedans like the old Ford Fiesta, Hyundai Verna ,VW Vento, Skoda Rapid & Maruti SX4 (petrol) fall in the 27% excise bracket. Sedans like the Honda City & new Ford Fiesta with 1.5L engines get the excise advantage.
In such a scenario, till the Hyundai Verna, VW Vento, Skoda Rapid and the Maruti SX 4 get a 1.5 L heart (depending upon whether their makers would prefer such a change now?), these cars will have the price disadvantage. I am not mentioning the MUV's ,SUV's and the much larger cars with around 2.0 L plus hearts, as these can in no way made to have engines of only 1.5 L.
The bureaucrats and all others dealing with the framing have little knowledge of the technicalities and draft such short sighted documents that turn into policy matters.Every time a budget is turned into a mandate and implemented, many such irrational changes creep in and turn the whole exercise into one that sends wrong signals everywhere.
The customer ends up as the loser ultimately.

[up-beat]

thanks GTO for the detailed review!

wow! This surely makes one regret an investment in a petrol car. And what with the petrol price hike will be a knockout punch to the petrol segment of the industry. The plus side to this is the manufacturers not doing great like Fiat may see a waiting period for their diesel models.

[oxyzen]

One thing I fail to understand is how come increasing the excise, help improve the net revenue. Is the word "volume" does not mean anything to our FM.

I can see where this is going. There is no point earning more in India. First you pay more income tax. Then you pay more for a premium car and then there is more service tax. Way to go.

Suppose you earn Rs 100. You give Rs 30 as income tax and then buy a Jetta worth Rs70. Which is actually Rs 51 (considering 27% excise).
But if you earn Rs 50. You give Rs7 as income tax. Buy a swift at Rs 43 which is actually Rs 38 (considering 12% excise).

So even if your salary increases by 100%, you can buy a car that is more expensive by 35%. How far are we from communism.

And get this earning Rs 100 is more difficult than ever since 50% of the jobs are actually for you.

Originally Posted by anjan_c2007

Sedans like the Honda City & new Ford Fiesta with 1.5L engines get the excise advantage.

I have a hunch that is why Ford had launched the 1.5L and not the 1.6. We might think it is a stupid decision, but get this, the Bureaucrats are no fools.


Note to mods. Please delete this post if inappropriate.

[narchennai]

Mainly I think the extra tax tag proposed to be added to Diesel Cars or SUVs did not happen due to a large share of these cars running as Taxi or Yellow no. plate. (Correct me if this is wrong)

This yellow no. plate is now facing increased tax due to service tax increase & increased insurance premium. Hence taxi fares will shoot up now.

[basoli]

This budget has been a real sad one for the auto industry. The interest rates for car loans are already sky high and now the duty hike. With most manufacturers eagerly passing the hike to the customers, it surely is going to be difficult to sell. Also, I don't think the auto companies would do anything to get into the lower duty slabs (change 1.6l engine to 1.5).