Go Back   Team-BHP > BHP Worldwide > The International Automotive Scene


Reply
 
Thread Tools Search this Thread
Old 18th November 2010, 22:32   #1
BHPian
 
luky_13's Avatar
 
Join Date: Nov 2008
Location: Bangalore
Posts: 577
Thanked: 116 Times
Default Why are cars cheaper in America ?

I have been pondering over this for a while and it became imminent when I was given the task of choosing a car by my brother-in-law (read rogue ). We eventually decided to go for a 2011 Honda Civic Sedan, but then the numbers did not make any sense to me. The costs are much higher here in India, this is despite the obvious cost advantage that this country can offer in terms of labour and capital investment.

A Few examples
HONDA
A Civic sedan costs approx $20,000 + Tax + Registration depending on trim level, whereas the in India it costs $27,000 (13 lakh) + Road tax + Registration and still it would be devoid of most bells and whistles that its american counterpart sports. The cost difference is 35%.

TOYOTA
Corolla Altis costs $18,500 ++ in the states, whereas its $27,200 ++ (13.5 lakh) in India. Cost differential is 40%.

MERCEDES
C300 Sedan puts you back by $36,000 ++ US. In India $68,000 ++ (32 lakh) for C250 V6. Cost differential 90%.

I can think of a few reasons for this huge cost differential. The auto industry in the west has
1. Higher Volumes - Higher segments command lower volumes in India
2. Higher degree of production automation - not sure ??
3. Low Taxation - India has a preposterous 20% excise + 13.5% vat
4. Lower import duty - lesser localization, making imports from low cost manufacturing hubs like China and Korea more viable

Maybe others can throw some light?
luky_13 is offline   Reply With Quote
Old 18th November 2010, 22:35   #2
Senior - BHPian
 
HammerHead's Avatar
 
Join Date: Oct 2009
Location: Goan in Pune
Posts: 1,093
Thanked: 210 Times
Default

^^^ Even I had same question in my mind for quiet a long time but then someone told me the reason as 'higher taxes' here.
HammerHead is offline   Reply With Quote
Old 18th November 2010, 22:50   #3
BHPian
 
drive_or_die's Avatar
 
Join Date: Oct 2010
Location: KA 51/ PB 25
Posts: 87
Thanked: 10 Times
Default

What you missed is Import Duty for CBUs, CKDs

Please read the following thread that will give you some insights on price differential from import duty, PPP (Purchase Power Parity) & etc perspective.

http://www.team-bhp.com/forum/indian...d-imports.html (Are VFM car makers actually making more money on the cars than overpriced imports?)
drive_or_die is offline   Reply With Quote
Old 19th November 2010, 11:50   #4
BHPian
 
Join Date: Nov 2008
Location: Hamden
Posts: 120
Thanked: 55 Times
Default

competition is another factor. It pushes manufacturers here to minimize profit margins.
raveen_2023 is offline   Reply With Quote
Old 19th November 2010, 12:17   #5
Senior - BHPian
 
aargee's Avatar
 
Join Date: Jan 2010
Location: KATN
Posts: 4,694
Thanked: 2,115 Times
Default

@Luky13 - I'm surprised you started this thread, I thought you knew the answer. Anyway, @drive_or_die is right here.

There's another way to look at things in USA versus India - the cost of living compared to the individual's income. The typical income of an US citizen might be around $ 6.5K per month while it should be around Rs 3100 (~ $70) per month. Now, even if the prices were kept even for argument sake, the price of Civic is $20000, then 3 months of US salary will fetch the Civic, while for an Indian...I leave the calculation to you

Quote:
Originally Posted by luky_13
Corolla Altis costs $18,500 ++ in the states, whereas its $27,200 ++ (13.5 lakh) in India. Cost differential is 40%
Obvious that Govt tax is about 30% + not all the parts for Altis is manufactured in India. If you probably take the case of SX4, the price difference should almost be the same or with a marginal difference, unlike 30 or 40%.
aargee is offline   Reply With Quote
Old 19th November 2010, 12:32   #6
BHPian
 
luky_13's Avatar
 
Join Date: Nov 2008
Location: Bangalore
Posts: 577
Thanked: 116 Times
Default

Quote:
Originally Posted by aargee View Post
@Luky13 - I'm surprised you started this thread, I thought you knew the answer.
Probably I know a partial answer.

Quote:
Obvious that Govt tax is about 30% + not all the parts for Altis is manufactured in India. If you probably take the case of SX4, the price difference should almost be the same or with a marginal difference, unlike 30 or 40%.
Which leads me to believe that
1. It is in fact dependent on volumes, which if sufficiently large will help the manufacturer localize to a greater extent than resort to imports.
2. Is it also dependent on Quality, are ancillaries in India able to produce the desired quality for mid and higher segments vehicle components? Because if they are not able to then that will again result in imports.
luky_13 is offline   Reply With Quote
Old 19th November 2010, 12:49   #7
BHPian
 
Join Date: Apr 2010
Location: Chennai
Posts: 311
Thanked: 61 Times
Default

@aargee Typical income of $ 6.5K/month(1.5-2K is a more realistic figure) is way too high for US. That is the kind of starting salary that an MBA grad from a good school might get. Also remember that there is 33% direct taxation there.

The reason is that cars are still a luxury in india and in india anything which is luxurious has huge taxation. So you will get a verna at probably 11k in US eventhough same will cost atleast 30% more in india.

Last edited by vishnurp99 : 19th November 2010 at 12:52.
vishnurp99 is offline   Reply With Quote
Old 19th November 2010, 12:56   #8
Senior - BHPian
 
download2live's Avatar
 
Join Date: Feb 2010
Location: Bangalore
Posts: 1,103
Thanked: 387 Times
Default

The real reason is that in India car is considered a luxury. And anyone who gets a car must be rich. Tax him to death.

Last edited by download2live : 19th November 2010 at 12:58.
download2live is offline   Reply With Quote
Old 19th November 2010, 13:24   #9
BHPian
 
Join Date: Oct 2010
Location: Chennai
Posts: 97
Thanked: 20 Times
Default Market size also determines

Also market size is a factor in deciding the cost.
October Civic Sales
in India - 401
in U.S - 17121
It costs less per piece if manufactured in bulk..
Source

http://www.team-bhp.com/forum/indian...s-figures.html (October 2010 - Indian car sales figures)
Auto Sales - Markets Data Center - WSJ.com

Can someone clarify if Civic is manufactured in India or CKD/CBU?
If Assembled/Manufactured, estimated % of local components?
Regards,
Kumaravel

Last edited by KumaravelS : 19th November 2010 at 13:43. Reason: In firefox weblinks are not working properly. Have to use Internet Explorer
KumaravelS is offline   Reply With Quote
Old 19th November 2010, 14:00   #10
BHPian
 
Join Date: Oct 2010
Location: Chennai
Posts: 97
Thanked: 20 Times
Default

Quote:
Originally Posted by vishnurp99 View Post
@aargee Typical income of $ 6.5K/month(1.5-2K is a more realistic figure) is way too high for US. That is the kind of starting salary that an MBA grad from a good school might get. Also remember that there is 33% direct taxation there.
Average U.S Salary is 45441$/Annum which equates to 3786 $/ month
India 1038$ / annum i.e 87 $ approx 4500Rs / month in real money terms

In PPP terms US salary is roughly same, whereas for Indian it is approx 3000$ / annum 11500Rs month (am actually amazed while computing this figure).. 10 years back when I was in school it was about 500$ per annum for average Indian. It more than doubled in the last 10 years whereas U.S it is roughly same (it was around 37000$ then).

Hmm!! If we could maintain the same growth of 8+ to 10% per annum, by 2020, our average salary would be 16,000+$ but by PPP we would have matched U.S (48000+$) if it stagnates in U.S and India's cost of living doesn't change.

Realisticly our cost of living would increase and probably we would end up somewhere in 30000+$ in 2020.. if no other parameter changes!!
KumaravelS is offline   Reply With Quote
Old 19th November 2010, 14:35   #11
Senior - BHPian
 
Join Date: Mar 2007
Location: Mumbai
Posts: 1,457
Thanked: 281 Times
Default

Quote:
Originally Posted by luky_13 View Post
A Civic sedan costs approx $20,000 + Tax + Registration depending on trim level, whereas the in India it costs $27,000 (13 lakh) + Road tax + Registration and still it would be devoid of most bells and whistles that its american counterpart sports. The cost difference is 35%.

TOYOTA
Corolla Altis costs $18,500 ++ in the states, whereas its $27,200 ++ (13.5 lakh) in India. Cost differential is 40%.
Those rates actually seem high. I had got a quote for a Corolla Automatic 10 years back & it was around 15000$ on the road - don't remember the trim - it had power doors & power windows, but mirrors were manual.
And I have checked prices even 5-6 years, they hadn't increased so much. And Civic Automatic was also around the same range at that time.


Quote:
Originally Posted by KumaravelS View Post
Also market size is a factor in deciding the cost.
October Civic Sales
in India - 401
in U.S - 17121
Also consider that car sales have been bad in the USA in the last few years. If you check 2005, Civic sold around 300000 cars in USA. That's 25000 average per month.

Quote:
Originally Posted by KumaravelS View Post
Average U.S Salary is 45441$/Annum which equates to 3786 $/ month
India 1038$ / annum i.e 87 $ approx 4500Rs / month in real money terms

In PPP terms US salary is roughly same, whereas for Indian it is approx 3000$ / annum 11500Rs month (am actually amazed while computing this figure).. 10 years back when I was in school it was about 500$ per annum for average Indian. It more than doubled in the last 10 years whereas U.S it is roughly same (it was around 37000$ then).

Hmm!! If we could maintain the same growth of 8+ to 10% per annum, by 2020, our average salary would be 16,000+$ but by PPP we would have matched U.S (48000+$) if it stagnates in U.S and India's cost of living doesn't change.

Realisticly our cost of living would increase and probably we would end up somewhere in 30000+$ in 2020.. if no other parameter changes!!
You also need to consider inflation. India's annual inflation is close to double digits. US's is around 2-3% per year.
carboy is offline   Reply With Quote
Old 19th November 2010, 14:51   #12
Senior - BHPian
 
srishiva's Avatar
 
Join Date: Nov 2006
Location: Bengaluru
Posts: 3,576
Thanked: 815 Times
Default

We know its because of taxes.

There are two ways that govts can look at this. Reduce the tax, increase the sales thus increasing the jobs. For us, since few people can buy cars, tax them higher to get more money out of them to contribute towards national income.
srishiva is offline   Reply With Quote
Old 19th November 2010, 17:25   #13
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 47,705
Thanked: 89,154 Times
Default

Taxes, Volumes & Local Manufacturing

- Taxes : Been discussed to death on the forum.

- Volumes : Most years, the Accord has sold 400,000 cars in the States (each year). Even a Maruti Alto doesn't sell as much in India. Where do you think the economies of scale are?

- Locally manufacturing : Cars costing over 10 lakhs in India have a fairly large % of import content.

The real value in the Indian market is when you buy pre-owned.
GTO is offline   Reply With Quote
Old 20th November 2010, 16:18   #14
BHPian
 
Join Date: Oct 2010
Location: Chennai
Posts: 97
Thanked: 20 Times
Default

Quote:
Originally Posted by GTO View Post
[b]
Volumes : Most years, the Accord has sold 400,000 cars in the States (each year). Even a Maruti Alto doesn't sell as much in India. Where do you think the economies of scale are?
probably by 2025$ our scale of economies might match U.S

Not only the production in economies of scale but also in the eco-system

I back calculated what could be the excess we are paying even after the import tax.

Cost of Civic in U.S = 20000$
as per honda website % of Indianisation in Civic is 74%Honda in India | Honda Siel Cars India Ltd | Honda Manufacturers India
So roughly the manufacturing cost of 74% Civic in India (assuming lower labour cost in India is offset by lesser economies of scale and productivity in India) = 14800$
remaining 5200$ warrants 55% import duty for CKD, which works out to be 8060$
total cost for Honda after importing components is 22860$ which is 4140$ more as it is sold at 27000$
so we India's loose out 4140$ in real economies of scale or productivity terms.




Quote:
Originally Posted by GTO View Post
The real value in the Indian market is when you buy pre-owned.
I doubt this too.. If you compare the pre-owned car price in U.S vis a vis India, I think it there would be similar difference.
KumaravelS is offline   Reply With Quote
Old 20th November 2010, 18:50   #15
BANNED
 
Join Date: Nov 2007
Location: shenzen
Posts: 154
Thanked: 23 Times
Smile

Quote:
Originally Posted by GTO View Post
Taxes, Volumes & Local Manufacturing

- Taxes : Been discussed to death on the forum.

- Volumes : Most years, the Accord has sold 400,000 cars in the States (each year). Even a Maruti Alto doesn't sell as much in India. Where do you think the economies of scale are?

- Locally manufacturing : Cars costing over 10 lakhs in India have a fairly large % of import content.

The real value in the Indian market is when you buy pre-owned.
hi
like to add more bad infrastructure also increase costs simple example
india does not have good shipping ports
when i was doing simple production in india which was electronic products it
took me 3 or 4 month to finish production because i had to import many ics from usa and taiwan
the same production i can finish in china in 2 days
yes 2 days
narry
narry is offline   Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search


Similar Threads
Thread Thread Starter Forum Replies Last Post
Why only Automatic cars in America? sbasak The International Automotive Scene 92 26th June 2014 09:46
America's best cars amit The International Automotive Scene 18 4th December 2013 07:57
Cheaper Scorpio variant launched EDIT: More variants with Cheaper 2.2 .anshuman The Indian Car Scene 42 10th May 2008 21:54


All times are GMT +5.5. The time now is 18:00.

Copyright ©2000 - 2017, Team-BHP.com
Proudly powered by E2E Networks