Budget bounty for small car, two-wheeler manufacturers
Krishna Kant (Economics Times)
FARMERS loan waiver scheme may have been the most talked about measure in the Budget, but for the middle class, the Budget was all about small, but smart cars. Not surprisingly, finance minister P Chidambaram, who looks and sounds as suave as his target audience in urban India, cut the excise duty on small car by a fourth to 12%. He followed it up by announcing a similar duty cut for two- and three-wheelers and buses. Manufacturers responded to the cut almost immediately. While Hyundai announced a pro-rata price cut by the evening of the Budget day itself, Tata Motors promised to follow suit in a few days. "We will reduce prices of small cars and commercial vehicles (including buses, bus chassis and bus body), in view of the reduction of excise duties announced in the Union Budget. The new applicable prices will be announced in the next few days, after the company has studied the details of the policy changes," said the company in a press statement. More small car and two-wheeler makers are expected to make formal announcement about the price cut this week. But how much would you save on your next car or motorcycle? While the exact amount of savings will depend on the model and manufacturers' decision about how much tax cut they wish to pass on to customer, ETIG has worked out the gross savings for various vehicle manufacturers. For Maruti Suzuki, in the first nine months of the current year, the company spent around Rs 2,300 crore on excise duty to the government. The tax-outgo worked out to be around Rs 43,000 per vehicle sold by it in the domestic market. Post-Budget announcement, the company's tax outgo could potentially fall by one-fourth or nearly Rs 550 crore. It may decide to pass on the entire savings to customers or keep a portion to boost its profit margin. Either way, its a boon for the company. However, the biggest gainer from the new tax regime could be Tata Motors, which is expected to commercially launch its muchawaited small car Nano later this year. Excise cut has significantly improved the financial viability of Nano project, which is expected to lose money initially. At an ex-factory price of Rs 1 lakh, Tatas will now save Rs 4,000 per car without any obligation to pass it on to consumers as the company has already announced the car's launch price. The Budget announcement also came as a relief for two-wheeler majors who have had a forgettable year so far. They not only have to cope up with a slowdown in sales and falling realisations, but also will have to compete with Nano and other proposed small cars. The Budget announcement will not only provide them greater headroom to manage price-competition, but also help in their fight with small cars. Hero Honda for instance, paid nearly Rs 1,300 crore or Rs 5,200 per vehicle as excise duty during April-December 2007. Post-duty cut, its tax-outgo may potentially reduce by a fourth or nearly Rs 320 crore which translates into a saving of Rs 1,300 per vehicle. Not surprisingly, the market cheered the duty cut. The 14-stock BSE Auto Index gained 1.2% by the end of the trading on the Budget day against 1.4% decline in Sensex). In all, eight stocks in the index gained while six closed in the red zone. The writer can be contacted at- krishna.kant@timesgroup.com
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