Auto sales drop as buyers wait for GST rollout

Auto sales declined ahead of the rollout of GST despite companies offering big discounts and showrooms of most leading auto brands wore a deserted look as companies delayed shipments and buyers decided to wait and watch.

With the GST rollout expected to make smaller cars cheaper by about 2.4 per cent and two-wheelers by almost 2 per cent, consumers decided to postpone purchase to gain the benefit of GST. Prices of bigger sedans and SUVs are expected to go down by almost 9 per cent and 14 per cent, respectively.

With the GST subsuming at least five taxes – excise, NCCD, CST, VAT and infra cess - small cars will now carry a total tax of 29 per cent (28 per cent GST + 1 per cent cess) compared to 31.2 per cent earlier.

Effective GST rates indicate the highest tax savings for sport utility vehicles (SUVs) for which the rate is down to 43 per cent from the present 55.3 per cent. Depending on state-level taxes, prices of SUVs are expected to fall by 3-4 per cent.

Most showrooms also closed early on Friday to close the monthly and quarterly accounts as they switch over to the new GST regime.

Passenger vehicle makers are adopting diverse distribution and sales strategies ahead of the 1 July roll-out of goods and services tax (GST).

Hyundai Motor India Ltd and Mahindra and Mahindra Ltd have chosen to only marginally curtail dispatches to dealers and offer steep discounts to ensure buyers do not postpone purchases until GST is implemented while others such as market leader Maruti Suzuki India Ltd and Toyota Kirloskar Motor Ltd have cut shipments to ensure dealerships are able to liquidate stock.

Auto firms sure to benefit from the GST roll-out were too willing to offer discounts and liquidate stocks rather than keep inventories piling up.

However since road tax, insurance, logistic cess and registration charges will be separate and would still have to be borne by the vehicle buyer, these may nullify gains from GST.