Despite GST Boost, Forex Pressure Keeps Luxury Car Growth in Single Digits: Mercedes' Santosh Iyer

Mercedes-Benz India expects the government’s recent GST rate cut to fuel strong double-digit growth in the short term, but has cautioned that the benefits may be tempered by macroeconomic headwinds such as rising inflation, volatile exchange rates, and the weakening of the rupee.

“An average reduction of 5-6% will have a positive impact on demand in next 4 months. For the long term, that 5-6% will be eroded with prices and it'll go back to the status quo," Santosh Iyer, Managing Director and CEO, Mercedes-Benz India told Autocar Professional. He added that the reduction in GST will immediately translate into better affordability for customers and will boost demand in the near term but over a longer horizon, the impact could be offset by inflation in exchange rates and the rupee’s depreciation. "We were almost flattish or single digit pre gst and it was worse in August because august was regrowth because of postponement of purchases. September-November in isolation will have a double digit growth but when you see a full year impact, you'll see a slight flattish growth. You cannot compare first 7-8 months with the last 3-4 months," he adds. 

The German luxury carmaker noted that luxury vehicles, which are highly import-dependent for components, are more exposed to currency fluctuations compared to mass-market cars.  

"Imapct of GST when I look at income levels of more than Rs 12 lakhs, the weighted average gain because of GST is 2.6%, tax rebate impact is 4.5% and when you look at rate cut benefit it's 0.17%. for a person earning Rs 12-15 lakhs, the expected benefit is 7.5%. this translates to close to Rs 10k more EMI. This can easily translate to an upgrade of a car. The real question is will inflation take away the advantage that has been seen," he said. 

Other long term deterrents of the luxury segment include high duties and taxes. "On top of that road tax is a bigger component. In places like Bangalore and Kerala, we have 21% road tax. Cars are much more expensive in India than other parts of the world," he added.