The Indian automotive industry won’t forget August 7 in a hurry.

Thirty-eight days after the implementation of the reformative one-country-one-tax Goods & Services Tax, of which the automobile industry was a key beneficiary, the GST Council’s decision to revise the 15% cess applicable on SUVs and large cars (more than 4 metres long and with over 1200cc petrol/1500cc diesel engines) to 25% has left CEOs and decision makers of the passenger vehicle industry both shocked and perplexed. Shocked because of the adverse impact on sales and perplexed because of the flip-flop in government policy.     

As is known, GST, which kicked in on July 1, gave taxation relief to virtually all vehicle segments, other than hybrids. Within these segments, UVs and large/luxury cars turned out to be the big beneficiaries with gains of 12% and 8.6% percent respectively. Now, with the GST cess being raised, it effectively nullifies the price reductions these categories enjoyed since July 1.    

Most automakers were quick to slash prices and large SUVs of the likes of the Toyota Fortuner, Innova Crysta, Mahindra XUV500, Tata Hexa, Mercedes-Benz GL series, BMW’s X range and Audi’s Q range saw massive price reductions.

Vehicle sales for most OEMs in July skyrocketed thanks to handsome UV sales; Toyota registered growth of 43 percent YoY (Fortuner: 3,400, Innova: 9,300) and Mahindra & Mahindra closed the month, up 20 percent with 19,152 units. Tata Motors too saw its UV sales surge 110 percent with the recently introduced Hexa SUV drawing buyers in a big way.

Now, with the GST price reduction advantage gone, large SUVs will have to fight for the consumer on their own competitive strengths – power, performance, panache. 

The imposition of an additional 10 percent GST cess is a big blow to SUV makers like Mahindra & Mahindra, Toyota Kirloskar Motors, Hyundai Motor India and even luxury vehicle makers like Mercedes-Benz, Audi, BMW, Volvo and Jaguar Land Rover. For a company like FCA India, which recently introduced the Jeep Compass at a very aggressive Rs 14.95 lakh (after having factored in GST benefits), the new cess will have them worried, more so considering local content in the made-in-India SUV is currently at a 65 percent level.  
In FY2017, overall passenger vehicle sales numbers nudged past the 3-million mark at 3,046,727 units to notch 9.23% YoY growth. Of this, 761,997 units or 25 percent comprised UVs, indicating that one out of four PVs sold was an SUV. In the April-June 2017 quarter, of the 727,658 units sold, 190,098 units (26%) were UVs. And July, whose numbers have yet to be released by SIAM, promises to hike that share even more.

Now, with the additional GST cess announcement, the month of August, just ahead of the festive season in India, doesn’t seem too august for SUV and luxury carmakers, who will have contend with revising prices upwards, deal with dealer stocks and keep their fingers firmly crossed that there are no further revisions and flip-flops in policy.

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