Mini-joy rides

They say great things come in small packages. This mini-budget is just the small package that automakers needed, well aside from Honda and commercial vehicle assemblers. After going back and forth on the subject, the government has decided to allow non-filers to purchase vehicles with engines upto 1300cc but with a 50 percent higher withholding tax on vehicle registration.

Automakers had been associating the slowdown in demand to the restriction on non-filers to purchase vehicles since more than 60 percent of car buyers do not file their taxes. As told to a popular daily, Indus Motor for instance was expecting a 10 percent reduction in car market size by the end of the financial year. The restriction on non-filers has no doubt, been a deterrent leading to booking cancellations but the impact was mostly felt by Suzuki, which is now set to substantially gain from the reversal of the condition.

Both Honda and Indus Motors have seen encouraging growth over the past six months. Honda City/Civic combined registered an 11 percent growth while Corolla sales grew by 10 percent in 1HFY19—the non-filer status seems to have not affected these car makers. Though, current numbers may just be higher due to past bookings and the backlog of those vehicles being delivered.

Another reason is that many of these cars are brought by dealers and investors who then sell these vehicles at premium to customers in order to deliver the cars on time. Since there is no restrictions for non-filers on transfer of vehicles, it opened a loophole for tax filing dealers to sell to non-filers at an additional cost that many consumers are willing to pay.

As the rupee depreciation struck, the three automakers have been raising prices through the past year to cushion the blow to their margins—ranging from 9 percent to 20 percent across variants. In Oct-18, both Honda and Toyota announced another price hike would be coming in Jan-19. It is possible consumers have been rushing to the dealerships to avoid that extra Rs100-250,000 they would have to inevitably pay after Jan-19.

Since most of Honda vehicles are above 1300cc, non-filer consumers hoping to purchase Honda vehicles will not find that reprieve. The demand slump that tractor manufacturers have already been facing in the past six months will also not be helped since the reversal does not extend to truck assemblers.

Undoubtedly, the past few days have been really encouraging for the automakers. Before the mini budget, the government had essentially ensured that used cars coming into the country and commercially being sold will be put to a stop by adding the condition that the duties must be paid in foreign currency (read more: “New policy for old cars”, Jan 23, 2019). Together these two developments have once again, put the ball back into the court of local assemblers and whether they can meet the demand of the market. But as far as reforms go, both are set to bring back the status quo.