Harley, others hit as duty hike makes locally assembled big bikes costlier

Industry feels foreign players will want to gain some volumes in India before developing local vendor base

US President Donald Trump is pushing for more duty cuts on import of completely-built American bikes such as Harley Davidson to India. But, there is a bigger concern bothering the international bike brands operating in the country: the government’s decision to hike the duty on completely knocked-down (CKD) bikes, which are locally assembled. CKD bikes account for three-fourths of the sales of these global brands. Besides Harley Davidson, this is true for British brand Triumph and Japanese brand Kawasaki. 

The decision of the Central Board of Excise and Customs (CBEC) to slash the import duty on completely built unit (CBU) bikes to 50 per cent from the earlier 75 per cent for 800cc and above, and 60 per cent for 800cc or less affects only one-fifth of their total voulume. Also, The CBEC hiked the Customs duty on import of engine, gear box and transmission mechanism, which form the completely knocked down (CKD) kits, to 15 per cent from the earlier 10 per cent.  

The recent duty hike on CKDs, coupled with the goods and services tax (GST) and cess — the Union Budget introduced a 10 per cent social welfare surcharge on imported items in lieu of an education cess which was 2 per cent — will push up prices of the luxury biking industry and affect volumes in the short- to medium-term. “There has already been a rise of 3 per cent tax after the GST, then there was the cess and finally this additional duty on CKD kits. Since the cess is not applicable on all products, the effective net rise in costs will be around 8.6 to 9 per cent. Manufacturers will pass this on to consumers. This is expected to raise prices by Rs 40,000 to Rs 120,000,” said Vimal Sumbly, managing director, Triumph Motorcycles India. Analyst Abdul Majeed, partner, PwC India, said in the medium- to long-term, foreign brands would focus on building a local vendor base here. 

What it means for Harley

The company’s India sales have been slipping since 2016-17 (when it had dipped by 21 per cent year-on-year). This year, it went down to 13 per cent for the April-January period. Even then, Harley has 56 per cent market share in the 500cc to 800cc segment, but players such as Triumph and Kawasaki are already catching up.

Source: SIAM Data

Harley’s global retail sales fell 6.7 per cent in 2017. It shipped 241,498 motorcycles abroad during the year. The company has said it will close down the Kansas City factory and consolidate production at its Pennsylvania plant. It also plans to cut 260 jobs from production ranks. 

The firm, had in December 2013 announced local production of its Street 750 model at the Bawal (Haryana) plant, making it the cheapest Harley available anywhere in the world. Till then it had sold around 4,000 motorcycles in India since entering the country in 2010. Sales jumped 140 per cent to 4,641 units in 2014-15. But growth was flat in 2015-16, at 4,708 bikes. An email sent to Harley remained unanswered

What it means for others

British brand Triumph said it started assembling locally as part of its Make in India strategy. They were importing CBUs from Thailand till 2016-17. This financial year, around 80 per cent of their portfolio is CKD bikes (expected to touch 90 per cent by June 2018). Kawasaki has a CKD plant in Pune.  Some brands such as BMW Motorrad, Yamaha, MV Agusta and Moto Guzzi, et cetera, stand to benefit from the cut in CBU duty. They are likely to pass this on to their customers. Italian bike brand Ducati, which imports its entire portfolio from Thailand, using a free-trade agreement, will not see any change.

While the government’s intentions might be to boost local manufacturing instead of assembly, the industry feels foreign players will want to gain some volumes here before they can develop a local vendor base.