BUDGET IMPACT: Small cars rework strategy

The move to support small car producers with an excise duty reduction has forced some of the companies to re-work their product roll out strategy.

While some leading car makers like Hyundai Motor India have decided to look at the possibility of making a diesel version of its premium cross-over Getz, fitted with a 1.5 litre engine, Honda Siel Cars said if its customers were "displaced" and the market was "distorted", the company might start looking at places where it could find customers.

The Budget, announced on Tuesday, had given a concessional duty of 16 per cent for cars upto 4 meters in length and engines with capacity up to 1200 cc (petrol) and up to 1500 cc (diesel). Cars that do not meet these conditions will continue to bear a peak excise duty of 24 per cent.

Hyundai Motor India's president, BVR Subbu said that the company would now look at the option of introducing a 1.5 litre diesel version of the Getz.

Rajive Saharia, heading of marketing, Honda Siel Cars, said, 'Its a little disappointing for us (for not having a product that can avail of these tax benefits). If my customers are somewhere else...I will have to look at them. How long it will take, am not sure.' Honda Siel that has so far been cagey on its plans for making small cars in India, will now pursue it with more enthusiasm.

This view to take a re-look at the product roll out plan at this stage is however not shared by all.

'We will not play this game. Our commitment to design and deliver cars that customers in India want, still hold good. These new rules will distort the market structure. Sectors that have done exceptionally well so far like IT, aviation and automobile are those which the government has left alone,' said Arvind Mathew, managing director, Ford India Ltd.

The American car maker's latest offering Ford Fiesta though comes with a 1.4 litre diesel version, disqualifies for concessional duty as its length exceeds the four-metre norm.

K K Swamy, Deputy Managing Director, Toyota-Kirloskar Motor agrees. "We roll out products that customers want and not because they suffer lower excise duty. I hope (this new excise duty structure) will not dampen the demand for bigger cars."

He added that the government has given concessional duty for 60 per cent of the market in terms of volume, while 60-65 per cent of the tax revenue generated by the industry comes from the 40 per cent that was not been given lower excise duty.

The Society of Indian Automobile Manufacturers (SIAM) too urged the government to include all cars in the concessional duty bracket.