Headline

Impact of budget 2013-14 to be neutral for cars and utility vehicle industry

Published On

Mar 15, 2013

Abstract
In union budget 2013-14, duties and taxes on small cars remains unchanged. However, excise duty on non-taxi sedans and UVs with engine capacity exceeding 1,500 cc, length exceeding 4,000 mm and having ground clearance of 170 mm and above has been increased from 27 per cent to 30 per cent impacting less than 5 sedan models owing to the condition of higher ground clearance. On the contrary, most utility vehicles (barring some newly launched models) will be taxed higher (at 30 per cent) impacting demand for such vehicles marginally.

Key Issues
- How much growth is expected in car sales in 2013-14? - How are the operating margins expected to move in 2013-14? - What are the changes in excise and custom duty on cars and utility vehicles and its raw materials in Union Budget 2013-14? - What is the impact of Union Budget 2013-14 on key automobile manufacturers?

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Recovery in small car sales to drive demand growth, margins to improve slightly in 2013-14
Slower growth in incomes, fuel price hikes and high interest rates continued to impact car sales in 2012-13. We therefore expect growth in car sales to remain flat during the year despite a tepid growth of 2 per cent recorded in 2011-12. However, utility vehicle (UV) sales are likely to continue growing by 32-33 per cent, led by new model launches and increased preference for diesel vehicles. Overall, passenger vehicle sales are estimated to grow by 8-10 per cent in 2012-13. In 2013-14, with GDP growth expected to be higher, concerns over income growth are also likely to ease. Moreover, an expected decline of 8-10 per cent in in petrol prices will drive a recovery in small car sales, which in turn will aid a 9-11 per cent growth in passenger vehicle sales. Operating margins of automobile manufacturers are estimated to decline sharply in 2012-13 due to lower capacity utilisation and firm input cost. However, in 2013-14, margins are likely to slightly improve as prices of raw materials like steel decline and sales volumes recover..

Automobiles - Tariffs:

Increase in excise duties to impact demand marginally

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Impact factors
A) Demand for high-end imported luxury cars (with CIF value exceeding $40,000 and an engine capacity of over 3000 cc for petrol-run vehicles and 2500 cc for diesel-run vehicles) will be impacted as the basic customs duty has been raised to 100 per cent from 75 per cent. However, these high-end vehicles constitute a miniscule portion of the industrys overall sales. B) The excise duty on cars remains unchanged at 12 per cent. Demand for non-taxi sports utility vehicles (defined as a motor vehicle of length exceeding 4,000 mm and having a ground clearance of 170 mm and above) with an engine capacity above 1500 cc, will be marginally affected by the increase in excise duty to 30 per cent from 27 per cent. Sales of such vehicles, which account for 10-12 per cent of total domestic passenger vehicle sales, grew by about 16 per cent during April 2012 to January 2013. C) Surcharge of 10 per cent on annual incomes exceeding Rs 1 crore could marginally impact demand for luxury vehicles. Currently, these vehicles account for less than 3-4 per cent of industry sales.

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