New Delhi: The government’s bid to tighten rules governing the import of vehicles in the form of completely knocked-down (CKD) kits won’t just hit makers of luxury autos, but also local companies such as Mahindra and Mahindra Ltd and Tata Motors Ltd that sell or are planning to sell products made by the companies they have acquired overseas.
Tata Motors sells vehicles made by its Jaguar Land Rover (JLR) unit, while Mahindra plans to sell the products of Ssangyong Motor Co., which it bought last year.
In the volume segment, Hyundai Motors India Ltd may face higher tariffs on some vehicles as it imports all its diesel engines.
Monday’s budget said manufacturers that import pre-assembled parts such as engines will have to pay a customs duty of 60%, the same as that applied to imported completely built units (CBUs), instead of the 10% that has been applicable thus far to knocked-down kits.
“It is going to affect all the companies, even domestic firms who are buying out foreign companies. All CKDs will be CBUs, thus attracting higher customs duty,” said Vishnu Mathur, director-general, Society of Indian Automobile Manufacturers. “They (the government) probably want to increase the revenue from the sector and also the emphasis is more on value addition to be made in India.”
The pricing strategy of JLR and Ssangyong will be hit, said Jatin Chawla, sector analyst at Mumbai-based brokerage firm India Infoline Ltd.
“It will also have an impact on high-end vehicles such as BMW and Mercedes but they don’t have large presence in terms of volumes,” Chawla said.
Mahindra and Mahindra’s president for automotive business, Pawan Goenka, said in December that the company will assemble and sell two Ssangyong sport utility vehicles—Rexton and Korando—in India.
The budget has also clarified that CKD covers “units containing a pre-assembled engine, gearbox or transmission mechanism as well as a body assembly on which a sub-assembly of assembled engine, gearbox or transmission mechanism is installed.”
Car makers such as Mercedes Benz India Pvt. Ltd, BMW India Pvt. Ltd and Skoda India Pvt. Ltd import completely built-up engines within the knocked-down kit, while other parts need to be assembled. The engine forms at least 15% of a car’s cost.
While Mahindra and Mahindra and Tata Motors could not be reached for comment, a Hyundai spokesperson said, “In all likelihood, there will be no impact on the company. However, it looks very confusing right now.”
The companies will ask the government for clarity on the issue. “We are trying to understand the details and will send a team of representatives to the government soon.”
Still, with volumes being on the low side, the measure may not have any impact on profitability, said Surjit Arora, sector analyst with Prabhudas Lilladher Pvt. Ltd.
Auto stocks rose on Tuesday as the budget didn’t roll back excise rates that had been lowered in 2008 to 8% from 12% as part of stimulus measures. In 2010, the government increased it by 2 percentage points to 10%.