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Old 8th November 2016, 22:17   #1
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Default Effect of Rs. 500 / 1000 note ban on the Indian car industry

Mods, please merge if this doesn't warrant a thread.

One of the first things that came to my mind when I heard about the news of replacement of 500 and 1000 rupee notes as legal tender was its effects on the used car market in the coming weeks and months.

Given the heavy reliance of the unorganized used car industry on cash, and now that there will be the heavy restrictions on withdrawal of cash from banks in coming weeks and months, one can only speculate how that will affect the prices of used cars. If the money paid to the sellers is white and the government gets the the tax it deserves, does that imply the so-called "burden" will be borne by the buyers?
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Old 8th November 2016, 23:05   #2
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Default re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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Given the heavy reliance of the unorganized used car industry on cash, and now that there will be the heavy restrictions on withdrawal of cash from banks in coming weeks and months, one can only speculate how that will affect the prices of used cars. If the money paid to the sellers is white and the government gets the the tax it deserves, does that imply the so-called "burden" will be borne by the buyers?
The government doesn't deserve any tax when it comes to used car sales especially in cases where the seller is an individual.

The seller gets a miniscule portion of the new car price back when a used car is sold. Since the thing sold is a depreciating asset, there is no tax owed.
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Old 9th November 2016, 00:18   #3
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Default re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

But this will affect the unorganised used car dealers a lot as they deal mostly in cash.
It will take some time for the full effect of the move to be seen.
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Old 9th November 2016, 05:16   #4
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Default re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

Yes, Cash plays a big role in used car Industry. If I understand correctly, most of the luxury cars are bought new in Company name and then sold in the used market with a mix of cash and cheque. New owners and sellers both used to benefit as the seller ( company ) would have claimed depreciation or even book losses due to the low sale price and the buyer who otherwise won't have a "white" income can afford to buy probably a segment higher car.

As of now, the popular belief is that all such activities are happening in luxury segment but I won't be surprised if overall numbers are more for the mid & low segment as there is only a limited population which pays Taxes in India.

I believe we may see a deflationary trend in nearby, people are definitely going to hold back new purchases and that, in turn, will mean a low number of used cars available.

I won't be surprised if resale prices of luxury cars fall even further. All in all good days for an honest tax payer.
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Old 9th November 2016, 12:02   #5
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Default Re: Effects of new Indian rupee notes on the Indian used car industry

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Originally Posted by Tanmay K View Post
Mods, please merge if this doesn't warrant a thread.

One of the first things that came to my mind when I heard about the news of replacement of 500 and 1000 rupee notes as legal tender was its effects on the used car market in the coming weeks and months.

Given the heavy reliance of the unorganized used car industry on cash, and now that there will be the heavy restrictions on withdrawal of cash from banks in coming weeks and months, one can only speculate how that will affect the prices of used cars. If the money paid to the sellers is white and the government gets the the tax it deserves, does that imply the so-called "burden" will be borne by the buyers?
There are two opposing forces in action here.
a) the predictable force of tax on each transaction. Since instead of hiding the profit margins in cash havens, one will be forced to pay a tax on it. This will lead to a very small increase in prices.

b) the unpredictable force of supply-demand. Do we have a breakdown of how many purchases of vehicles are made via black money vs white money? If presently there is a significant demand of used vehicles from the black money, we need to note that this community suddenly has become poorer by some amount. Therefore it is expected that this demand will go down. Ergo prices will fall.
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Old 9th November 2016, 17:42   #6
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

This is economic history - there is no doubt that the car market will be affected. Whether good or bad depends on what your position is.

For those who earn in white (salaried + ethical businessmen), it's business as usual. No difference. In fact, they will be able to squeeze out a better deal as the black moneyed are having sleepless nights....buying a car is the last thing on their mind now.

I expect new car discounts to climb as dealers will be eager to push metal out the door.

Used cars - a segment where black money has traditionally ruled - will take a major blow. Again, the white moneyed can look forward to some excellent deals. No better time to buy a used car with legitimate money.

In the shorter term, I'd expect new car sales to go through a slowdown. November will be BADLY hit. Longer term, there are huge, huge gains as a lot of dirty money is re-entering the system. IMHO, new car sales will grow after an initial lull.

I pity the guy who sold his S-Class yesterday for 20 lakhs cash + 10 lakhs cheque .
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Old 9th November 2016, 17:50   #7
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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I expect new car discounts to climb as dealers will be eager to push metal out the door. In the shorter term, I'd expect new car sales to go through a slowdown.
What's the link? New car purchases are done mostly with white money right? PAN Card is mandatory remember.

I guess it might be possible only if there is a very significant crash in pre-owned car prices - which makes an used car more attractive than a new car.
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Old 9th November 2016, 17:54   #8
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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This is economic history - there is no doubt that the car market will be affected. Whether good or bad depends on what your position is.
Any dealing in car should not matter as it is not a capital asset & does not attract capital gain tax in hands of any tax payer (except the dealer, of course, who will treat this as stock item sale).

Be confident & deal the way you want.

Last edited by GTO : 10th November 2016 at 11:08. Reason: Please quote ONLY the relevant bits of a post. Quoting a full, long post inconveniences our mobile readers.
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Old 9th November 2016, 18:10   #9
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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What's the link? New car purchases are done mostly with white money right?
A majority of this country has some black money. When you've just lost lakhs / crores of black money, you're not exactly in the mood to buy a new car with your white money.
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Old 9th November 2016, 18:13   #10
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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What's the link? New car purchases are done mostly with white money right? PAN Card is mandatory remember.

I guess it might be possible only if there is a very significant crash in pre-owned car prices....
Hmmm... as long as the transaction is through a bank account (with or without a loan), we can assume the transaction is 'white'. Where significant portion comes as cash, it is anybody's guess.

May be that is one of the reasons why government introduced 'TCS' (tax collected at source) on cars valued above 10 lakh.

Anyone buying a used car above, say, Rs. 10 lakh AND having black money may get affected due to demonetization. But how many such deals are likely to happen across the country, given the number of premium cars on road?


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Originally Posted by GTO View Post
.... will be able to squeeze out a better deal as the black moneyed are having sleepless nights....buying a car is the last thing on their mind now.

Used cars - a segment where black money has traditionally ruled - will take a major blow.
Right. It will be a factor of demand vs. supply. So, you bought a car with white money and when you try to sell it off now, where do you stand? Probably not sell in a hurry?

Agree - to the extent where it is a premium or C+ segment car. In other cases, I am not sure there will be much of an impact.


Now, what it is going to be like in the real estate scene .....
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Old 9th November 2016, 18:19   #11
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

Used car dealers are not like builders, they cannot afford to hold onto inventory forever, or atleast until the ecosystem stabilizes. I am expecting great deals on vehicles which used to be in heavy demand by the Real estate ty-goon sector (read : white Fortuner/Scorpio/Swift) types.
On the banking side, I hope banks start offering better finance deals on used cars, to encourage the market as well as keep things "white". Infact, the way to go is 100% finance for used cars , so whatever black money component that might creep in is also eliminated.
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Old 9th November 2016, 20:57   #12
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Question Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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I am expecting great deals on vehicles which used to be in heavy demand by the Real estate ty-goon sector (read : white Fortuner/Scorpio/Swift) types.
Do you mean to say that the real estate tycoons use these cars, or their goons?
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Old 9th November 2016, 22:04   #13
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

Quote:
Originally Posted by GTO View Post
For those who earn in white (salaried + ethical businessmen), it's business as usual. No difference. In fact, they will be able to squeeze out a better deal as the black moneyed are having sleepless nights....buying a car is the last thing on their mind now.
I belong to this category so I hope some good deals come along.

Quote:
I pity the guy who sold his S-Class yesterday for 20 lakhs cash + 10 lakhs cheque .
What about people who sold flats / property worth crores and took a large chunk in black?

Quote:
Originally Posted by smartcat View Post
What's the link? New car purchases are done mostly with white money right?
Quote:
Originally Posted by GTO View Post
A majority of this country has some black money. When you've just lost lakhs / crores of black money, you're not exactly in the mood to buy a new car with your white money.
In addition to this, you normally buy a new car after selling your old car. If you can't sell your old car (due to the used market taking a hit), it's difficult to buy a new one.
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Old 10th November 2016, 03:17   #14
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

'Black Money' is imo a misnomer (for the most part.) Cash-ness or 'informal'-sector-ness is in no way the same as 'blackness'. Most 'money' labelled 'black' is in actual fact not black at all but 'grey' i.e., debatable whether it is white or black, indistinction reigns, since money is fungible!, and is the very foundation of why the so-called 'black economy' is completely and will-remain ir'repressible' which is NOT to say it cannot be reduced in other, non'fiat' ways.

Besides, most 'black money' is not money at all (if that means 'cash') but is already in 'asset' form (gold, property, foreign currency holdings etc and....political/bureaucratic/judicial/etc office itself including the very highest ones of the states and the country!)

The question is who settles the debate about whether particular peoples' cash-confessions/deposits are 'white' or 'black'? The government is trying to arrogate to itself the in-principle 'sovereign right' to decide that, with almost-in-principle perfect arbitrariness i.e., 'fiat', rather than as should be the case: leave it to professional, impersonal, non-arbitrary and universalist taxmen+CA-s+ especially the courts (which last are completely irrelevant: a ridiculous situation.)

Tax evasion is a slighter and far more difficult to solve problem than the easily soluble one of tax avoidance by current 'white' taxpayers via the infinite number of tax and company law etc etc loopholes, giveaways, canny legal structures, 'religious trusts' etc etc. In fact, tax evasion is usually/often indistinguishable from gaming i.e., from tax avoidance, which is why all large holdings of 'black assets' are in fact better characterised as 'grey' which is precisely why they cannot be 'arbitrarily and easily repressed' away by 'fiat'!

By publicly seeking to conflate 'blackness' with 'greyness', 'blackness' with large-'cashness'/'informality' the government is creating deep-uncertainty and distrust: fear, EVEN among the 'white'='grey' (debatable/disputable 'blackness', as i said) folks. i.e., demand will be dampened massively, all else equal, in all sorts of markets, not least of course: real estate and cars.

The sheer arbitrariness that has been introduced in terms of whose cash-deposits or expenditure on what in which way (cash v/s digital v/s cheque...) is deemed questionable and whose not is and will corrode, all else being equal, the propensity to buy-and-sell, i.e., the 'velocity of money', whether in the short, medium- or long-runs.

A very dubious cart-before-horse, short-cutting approach? Whatever the political 'gains' and 'losses' (pardon the pun!) it will imo be self-fulfillingly self-defeating, interms of additional government-revenues (tax(esp direct)-gdp ratio), in terms of consumption-or-financial savings-or-investment-or-credit-to-gdp ratios too. In aggregate, that is, rather than short-term 'distributionally' which imo seems the greater, more-real and therefore more contestable objective of this de-monetization 'policy'.

[All else, which is a lot, being equal: as the caveat.]

The auto industry will bear a major brunt here, esp used and 'premium/luxury', i fear, and there are the gst problems and the emissions/pollution-regs ones too looming already.
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Old 10th November 2016, 10:57   #15
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Default Re: Effect of Rs. 500 / 1000 note ban on the Indian car industry

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Originally Posted by sajo View Post
Used car dealers are not like builders, they cannot afford to hold onto inventory forever, or atleast until the ecosystem stabilizes.
Here is an article from Mr. Madan Sabnavis, a frequent columnist on Financial Express on demonetization.

Effects of Demonetization of 500 and 1000 notes.pdf

The impact on automobile industry is expected to a limited extent...
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