[SunilM]

While we are discussing possible reductions in prices of luxury cars due to FTA, this budget has chose to "define" CKD. This could result in a heavy increase in prices of cars like the 3-Series, 5-Series , X1 the C- and E-Class, A4 and A6 and the Q5 SUV etc. Even Toyota cars could be increased by a significant amount as they do not manufacture engines here. Knowing Pranabda and his left of center policies, he is unlikely to yield and give concessions to so called "rich people". We can only hope that the auto lobby is strong enough to stonewall this move. Otherwise it will be a shame and heartbreaking with long repercussions

The ET Article:
A provision tucked away in a corner of the Budget papers could well spoil the party for a section of carmakers , especially multi-national companies such as BMW, Audi and Mercedes, that otherwise were rejoicing with other players in the auto industry over the FM sparing a hike in excise duty.

Hidden in the memorandum explaining the provisions of the Finance Bill was a point over what comprises a completely-knocked down (CKD) vehicle, or one that is just assembled here though being near-imported in its composition.
“A definition for ‘CKD unit’ of a vehicle, including two-wheelers, eligible for concessional import duty is being inserted to exclude from its purview such units containing a pre-assembled engine or gearbox or transmission mechanism or chassis where any of such parts or sub-assemblies is installed.”

In simple terms, this implies that auto companies that are doing CKD business in India with fully-imported pre-assembled critical parts like engines or gearbox or transmission cannot claim the lower 10% import duty on them as these will no longer be defined as CKDs. This would bring these vehicles at par with fully-built units and thus slap a hefty 60% import duty on them, which would go up to as much as 110% after the addition of counter-vailing duty, VAT and other local levies.

A change in the duty would mean a drastic hike in prices of all entry-level luxury cars from the stable of BMW, Mercedes and Audi.

Even companies such as Toyota may be affected as it does not make any engine for its cars in India, including its newly launched Etios sedan. It is importing engines from Thailand and Japan.

Interestingly, Maruti and Mahindra — top local manufacturers who have completely indigenized operations — were among the biggest gainers on the sensex.

Source: Entry-level luxury cars may cost more

[Yeldo]

If this is true, then a significant portion of the industry is going to be hit hard for some time till indigenous capacities are created. The price difference between the BMW 535i and lower variants may be gone, and an E Class saloon may be as expensive as a E Coupe. The S Class may be out of the market, as the 7, the XJ and the A8 which are already imports, all turn out to be cheaper than it! What shall become of the Jetta and the Passat I can only imagine.

On second thoughts, would it be possible for the manufacturers to import an engine sans the spark plug or Diesel pump, or a gearbox without a gear lever and claim exemption?

[julupani]

The exact provisions of this are not clear yet, ie what criteria exactly will attract the full CBU import duty rather than the reduced CKD duty. I think they will set a particular percentage of indigenisation in terms of the value of the car as a qualifying criteria.

More than the entry level cars I think, one of the worst hit may end up being Toyota, who as of now do not produce any drive train components in India. Luxury cars will still sell,though volumes may take a small dip. But where will you go, if not a BMW or Merc etc. But if the Toyota Innova starts to cost as much as the Tata Aria, you can expect people to migrate to the Xylo and the Aria. The Fortuner will fall down flat from its present great performance. The worst hit will be the Etios which operates in a heavily price sensitive segment.

Any body have idea about from where Nissan gets its engines and gearboxes??

[DNM]

In Today's Times of India, on page number 23, came an article about the price hikes on Imported cars.

The Budget stated a hefty price hike of over Rs. 8 Lacs or more, in the prices of entry level cars of companies like BMW, Audi and Mercedes.
Mostly for the carmakers of the German stable, a change in definition of 'Completely Knocked Down' (CKD) car is threatening to derail the softer import duty engine.

In simple terms, this implies that auto companies are doing CKD business in India with fully-imported pre-assembled critical parts like engines or gearbox or transmission cannot claim the lower 10% import duty on them as these will no longer be defined as CKD's! This would slap a hefty 60% import duty on them, which would go up to 110% after the addition of counter-vailing duty, VAT and other local levies.

The models affected could be all entry-level luxury cars. From BMW, these would include the 3-series and 5-series sedans and the X1 SUV, from Mercedes, the C-class and E-class sedans and from Audi, the A4 and A6 sedans and the Q5 SUV. Other companies who are having a few CKD models, like Toyota Fortuner, Volkswagen Jetta and Passat and Ford's Endeavour.

The Society of Indian Automobile Manufacturers (SIAM) officer said, " Sales will be hit as affordability goes down. This kind of a provision, if it there to stay, will be negative for further investments."

Sources said the German embassy has also been alerted on this matter and is actively looking into the issue. Comfortable prices of luxury cars and growing affluence in India have seen sales of luxury cars zoom! Companies like BMW, Audi and Mercedes have seen India emerge as one of the "fastest-growing markets globally" (over 70% growth), though volumes are still at a nascent stage. The total market of luxury cars was about 18000 units last year, and is expected to double in the next two-to-three years if the lower duty regime stays.

"However, all the projections would go haywire in case the new provision is enforced", an official said.


Looks like there is a bit of a bad news people!

This is the original article that was printed on todays Times Of India, dated 2nd March, 2011.

Go ahead and read it!

[naj]

Hi!

Todays TOI which also carries a detailed report of the same . According to it The German car makers have formed a core group and approached SIAM for clarifications and representation. The German Embassy has also been alerted.

Like me every one aspires to own a BMW or a Audi, so what if its an A4 or a 3 series. Corporate editions which are now available with little stretching and planning will now be out of reach and a feasible dream bubble busted.

Cheers,

Naj

[cruiser@0523]

Good news, a person paying 50 lacs for a car should have no problem paying 5 more. Though our government is still not going the right way, after taxing these cars, they should provide subsidy and cut down all taxes on eco friendly vehicles.

[DNM]

But cruiser@0523, dont you think that those who want a Mercedes E or C class. or an Audi A4, for that matter, has to shell out 8 lacs more on it.
I think this should not be implemented by our government!

[moralfibre]

Being discussed in this thread.

[VW2010]

What shall become of the Jetta and the Passat I can only imagine.

Now buying a 2010 Jetta looks a good idea. LOL

I am wondering what difference does it make to now build units and import or import parts and build it here in india.

[kkr2k2]

Originally Posted by Yeldo

.......
On second thoughts, would it be possible for the manufacturers to import an engine sans the spark plug or Diesel pump, or a gearbox without a gear lever and claim exemption?

Good point . I am sure the car manufacturers by now have already consulted their consultants to find such loopholes!!!

[cruiser@0523]

Originally Posted by DNM

But cruiser@0523, dont you think that those who want a Mercedes E or C class. or an Audi A4, for that matter, has to shell out 8 lacs more on it.
I think this should not be implemented by our government!

There are more people, who cannot even afford a car, than those who go out and just pick up mercs and bmw's at their whim. I am no robin hood, but i feel these cars should have atleast 60% locally manufactured parts, more jobs. Instead of Indian money going abroad, it stays in India.

[psbali]

I sort of read about this in the yesterday's news paper. And to all who are calling it a bad news should think before they comment. As we are the beneficiaries. Those companies would be compelled to reach a level of localization thereby creating more jobs in India and the localized parts would be spared from 10% import duty on top of that.

There is a huge opportunity for quality component manufacturers to enter India. They will have to partner an Indian company thereby retaining more revenue in India itself. It is a win win situation for us Indians. It is the best news in this budget. After cash subsidy on kerosene and LPG.

What would you prefer..? even cheaper "Made in India BMW'sand Mercs" or CKD BMW's and Mercs??

IMHO it is a step in the right direction. If this is successfully implemented then one day you can expect those companies to start manufacturing their cars in India itself. Otherwise we may lose the manufacturing facilities to China in case we dont put countervailing measures. They would only be further promoted to keep their facilities away from India.

Even when Toyota and Honda do good volume in India they still import their engines. Our Govt has lured these premium car manufacturers by means of CKD concessions. Now that they have tasted the growth in India they would be forced to get their facilities over here or would be forced to share their technology with vendors.

[akj53]

This may actually turn out to be a great business opportunity for somebody to start manufacturing "Bullock Carts" and motorised "Jugads and tri rickshaws".

Bullock Carts are easily made from wood and steel, no engine and gearbox is needed so no worry of import duty. Legally manufacture of farm equipments is exempted from excise duty and VAT. They even don't need the RTO registration and driving license. Owner does not have to bother about spiralling cost of petrol or diesel. No need for an vehicle AC, as you enjoy open air driving so driving pleasure is equivalent to a convertible. You get free quadraphonic sound from all direction so no need for an music system. Bank loans will not be needed and best of all - the owner will get maximum oh...s and aaaahhhs when he arrives in the majestic cart in a club, party or at a 5* hotel. Certain owners will however keep a chauffeur to drive this beauty.

Jugads can be easily assembled from the kits freely available in the local Kabadi Bazar at throw away prices. Most of the above conditions will also be applicable to this form of transportation.

Welcome back to stone age. Mere Bharat ke neta or babu mahan.

[JJames]

Originally Posted by akj53

This may actually turn out to be a great business opportunity for somebody to start manufacturing "Bullock Carts" and motorised "Jugads and tri rickshaws".

Welcome back to stone age. Mere Bharat ke neta or babu mahan.

That was funny; man you have some talent! But over here, I dont think you are right with your ideologies. On the contrary, I feel this is a step in the right direction by the Government. The hidden message with this measure by the FM is to increase localization of cars in India- meaning more jobs in India. At present, China is all set to become the production hub of cars (in fact, everything - from safety pins to aeronautics).

[Yeldo]

Originally Posted by cruiser@0523

Good news, a person paying 50 lacs for a car should have no problem paying 5 more. Though our government is still not going the right way, after taxing these cars, they should provide subsidy and cut down all taxes on eco friendly vehicles.

Income and Corporation taxes account for 35% of the government's revenue, and taxing a luxury car that is bought by those who pay these any more than the present level is what you may define as oppressive taxation.

There is no genuine eco- friendly vehicle in the truest sense of the phrase, my dear sir. Almost all such vehicles are made for the benefit for emission targets, credits and R&D grants and write- offs that a regulate- all EU bureaucracy and a chocked- with- smog California politicians dream up to satisfy the outcries made at fund-raising events of activist groups.

Originally Posted by cruiser@0523

There are more people, who cannot even afford a car, than those who go out and just pick up mercs and bmw's at their whim. I am no robin hood, but i feel these cars should have atleast 60% locally manufactured parts, more jobs. Instead of Indian money going abroad, it stays in India.

Your point taken and is well- intended, but it is not economically feasible to insist that every car should have such levels of localization, especially comparatively low volume ones. And remember this proposal also hits manufacturers like Toyota who are not exactly luxury manufacturers.

What about products and services other than cars- are they also localized to such extent? For example, a cut- off percentage for foreign components in telecommunication equipment or computers? Or may we demand a 50% localization in airline personnel on flights operating out of India? Worse, is the petrol we put in our cars 60% Indian? How many of these auto manufacturers are 60% Indian owned?

Further, if every country starts on setting such norms, were would our exports go? Or would we be able to export anything at all including human capital? An open economy, Sir, is what brings prosperity and opportunity. Not synthetic and artificial barriers.