Hyundai Motor India Ltd—the country’s second largest vehicle manufacturer—is exploring ways to pass on the benefit of the corporate tax reduction to potential customers.
Although customers are expected to flock to the showrooms during the festive month of October, the company has decided to increase discounts on four models—the Santro, Creta, Elite i20 and Grand i10—that kicked in on 21 September.
According to automobile manufacturers and dealers, customers stayed away from showrooms in September, expecting a reduction on the goods and services tax rate levied on passenger vehicles.
The country’s largest vehicle manufacturer, Maruti Suzuki India Ltd on Wednesday reduced the price of select entry level offerings and diesel variants of different products by ₹5,000.
According to Vikas Jain, national sales head, Hyundai Motor India, after 20 September, enquiries from potential customers increased sharply and bookings of some of the vehicles rose by almost 50%. As Navratri and Diwali both fall in October this year, sales of vehicles could be better than the preceding months.
“The tax reduction will definitely help us in improving the cash flow. Now, we need to decide what to do with this additional money. We have to look at other factors too since last fiscal we made profit but this fiscal depending on how much utilization of capacity has happened, there has been a volume loss plus the offers have gone up (a decision will have to be taken). There is an investment required on BS-IV to BS-VI and with lower tax rate, we can use this money for capex and thereby reduce the price gap between a BS-VI and BS-IV products," added Jain.
Sales of automobiles, especially passenger vehicles, have been declining since July 2018, as banks became cautious about lending to customers and non-banking financial companies (NBFCs), in the aftermath of the bankruptcy of IL&FS and an increase in overall costs of vehicles due to the introduction of new safety norms.
The festival season is critical for automakers as cars account for about a third of annual vehicle sales.
With the automotive industry bearing its worst sales slump, Hyundai, Maruti and other automakers have unveiled their highest ever discounts and other offers to attract consumers.
“(Festive season sales) should be better than the previous months but compared to last year we still need to wait and watch. Still, too early to comment on the overall festive period. October has both Dussehra and Diwali, so it should be a positive. From 21 September, we see definite improvement in consumer sentiment. It is a positive and significant change. At least, there is a recovery path which is visible now," added Jain.
To revive consumption demand in the domestic market, the government had on 20 September reduced corporate tax rates from 30% to 22% to boost consumer demand and increase spending by private companies. The effective tax to be paid by the companies, including surcharge and cess, will be 25.17%.
Earlier, the Union government also mandated its departments to buy new vehicles to increase demand and also assured potential customers that BS-IV vehicles will be allowed to run for its entire registration period.
Mint on 24 September reported that Hyundai is aiming to maintain 20% increase in passenger vehicle exports from India in this fiscal year to compensate for the loss in the domestic market.