Car sales rev up on festive spirit, despite cess bump

It was widely expected that the GST Council will hike cess by 10% on sedans and SUVs

Car makers continue to see a growth in bookings and enquiries from customers in spite of an increase of up to seven per cent in cess more than a week ago. 

Automakers said the current demand was aided by the festive season and any negative impact of the cess might not be visible before November.

“The increase in cess is lower than what the manufacturers and customers were anticipating,” said N Raja, director and senior vice-president (sales & marketing) at Toyota. “We continue to see a growth and pickup in demand even after the cess turned effective from September 11. However, we are not sure if this trend will continue when the festive demand drops, by the end of October.”

About 90 per cent of Toyota’s product portfolio has been impacted by the government’s decision to hike cess on certain cars after announcing the first set of tax rates under the goods and services tax (GST).

It was widely expected that the GST Council will hike cess by 10 per cent on sedans and sports utility vehicles. However, the Council decided to cap the increase at seven per cent, while imposing a lower cess of two or five per cent on certain categories of vehicles. After the increase, Toyota had to increase price of its best-seller Innova by Rs 80,000-1,00,000 (five per cent) and Fortuner by Rs 1,50,000 (seven per cent). The Etios sedan turned expensive by two per cent. These three products bring 90 per cent of sales for the Japanese car maker. 

Festive season in most states begins from Thursday with Navratri and continues till Dussehra on September 30. Demand is expected to continue next month owing to Diwali. Car makers have been rolling out steep discounts and benefits to buyers, to keep the sales momentum strong as many buyers advanced purchases to escape the impact of cess. 

Rakesh Srivastava, director (sales and marketing) at Hyundai, said there was price sensitivity among buyers in spite of the sales promotional offers. “We will have to watch the sales this festive season to get a better outlook on the overall trend in the industry.” Hyundai’s popular models such as Elite i20, Creta and new Verna saw a price increase after the additional cess. 

Luxury car brands seem to have taken a stronger hit than mass market players because of the increase in cess. Most luxury vehicles now attract an additional cess of seven per cent. Gurmeet Singh Anand, managing director at AMP Group, the sole dealer of Jaguar Land Rover in the National Capital Region, said his business was almost at a “standstill” as sentiments were weak. 

The luxury car segment forms one per cent of the three-million-unit domestic car market. Vikram Pawah, president at BMW Group India, said the company is offering "irresistible" festive prices with service packages and complimentary insurance for buyers’ peace of mind. “With this end-to-end offer, BMW aspirants have all the reasons to take home the car of their dreams,” said Pawah. 

The domestic passenger vehicle (cars, vans and utility vehicles) industry has seen its sales grow by 8.67 per cent to 1.32 million units during April-August FY18. In August, car makers reported a near 14 per cent growth in sales to dealers and a double-digit growth is expected in September as well. The industry is expected to close the year with a high single-digit growth.