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Have luxury carmakers’ hopes around GST been belied? Top honchos explain

In mid-September, the GST Council raised the cess on passenger vehicles. Although it was not as high as the expected 10 percentage points, luxury carmakers ended up with the rough end of the stick, with prices of their models going up by between Rs 1.5 lakh and Rs 4.5 lakh. The CEOs of the Indian operations of the global top 3 in automobile luxury — Audi, BMW and Mercedes-Benz — point out in pieces penned by them why their hopes around GST have been belied:

Overnight Orders Throw Business Plans out of Gear: Rahil Ansari, head, Audi India

Have luxury carmakers' hopes around GST been belied? Top honchos explain

I think nothing else has kept the luxury car industry busy this year as GST. There have been emotional ups and downs during the journey.

We felt and still believe that GST in principal is a good move to bring the country under a uniform tax regimen and reduce complexities. There had been a strong push on GST by the government and we were looking forward to the implementation. We were still studying the impact of GST to understand the final effect on the ex-showroom price, owing to the complexity of the value chain in mid-May, but were confident on the business development in the coming months.

Traditionally, April and May are slow months, implying dealers will be carrying higher stocks. The demand from customers was at a low this year because of the GST announcement. After May 19, for a whole week there was a sense of complete indecisiveness among the people but this changed in June. Apart from manufactures preloading the GST benefits in the pricing in the month of June itself, dealers were also keen to liquidate the stocks. Hence, June was one of the best of times to buy luxury cars because of good offers in the market.

Smart buyers who understood the economics knew that this was the time to buy. Audi India also rolled out measures to help dealers sell the stock.

After the initial GST announcement, the prices on most of our models were reduced and we saw a great excitement in the market. We had hoped that this will be a new and exciting phase of the luxury car business in India. The new realigned prices post-GST offered luxury carmakers a great opportunity to expand the market and widen the customer base. And then in August, the news of a possible cess hike hit us.

Luxury cars in India, while small in volumes, still contribute around 10% in value. The taxes on this industry were already very high and we expected the unfulfilled potential of this segment to increase after the implementation of GST and rationalisation of taxes. However, the proposal of further increasing the cess on the luxury car industry dampened the spirits of not only the companies, dealers and customers but also workers and employees in this industry. We estimated correctly that this proposed increase in cess will adversely impact sales. We were forced to re-evaluate our business plans in light of this development.

For me personally, it was just six months on board in Audi India and we were discussing about a second tax change. While it dampened the spirits for the industry, it was a good time for customers.

For sure, we were seeing an increase in customer footfalls as, for them, it was the best time to buy before the potential cess hike hits. Customers who were looking to buy a car during the festive season or during the next two or three months looked at immediate purchase. However, it was a temporary increase in sales as this was a preponement of purchases. Hence, it was not really positive in that sense if you see it from a larger perspective. We were wishing for a sustainable increase in sales in terms of GST implementation and long-term growth of the luxury auto segment.

The cess rate hike was announced in September. Even if the rumoured cess hike of 10% was not concluded, the prices still had to go up, which is disappointing. We expect the luxury car market to showcase a flat growth this year. Due to the developments during the year, we are expecting sales for the year to be stable. Also, we were very clear on achieving a sustainable growth, which excludes buying market share.

While we still support GST and think it will be beneficial in the long run, our worry has been the implementation of GST especially for the luxury car industry. Overnight orders throw business plans out of gear, especially because we were looking at support for that segment in order to support the economy in India through more sales. A plan to increase the cess barely after a month of an announcement is unheard of.

Where is the planning security in such a scenario? What projections do we work on when we don’t know what might happen tomorrow?

We should let go of the socialist attitude: Roland Folger, MD CEO, Mercedes-Benz India

Have luxury carmakers' hopes around GST been belied? Top honchos explain

For the automotive industry in general and luxury cars in particular, 2016 was not the best of years, as we hit more speed-breakers than expected. The implementation of the GST structure in 2017 came as a much-required boost for the luxury car industry and we hailed this as a landmark achievement, which promised to further aid the ease of doing business in India.

However, in course of the following months, GST turned out to be a mirage as the government termed the reduction in GST rates for luxury cars as an anomaly and drove fast to correct it.

The delineated positives of this new tax regime on the auto industry were beneficial; for instance, simplifying logistics, driving efficiency and reducing the overall operational and manufacturing costs.

At Mercedes-Benz, we were hopeful that with GST, the overall complex tax structure will decrease and drive higher efficiency in our operations, as the whole country would be treated as One Single Market. We were hopeful that GST implementation was going to be creating the much-required consumer demand for the luxury car industry.

In this context, and also backed by my GST experience in Malaysia, we decided that as a customer-centric measure we will pass on the GST benefits to consumers with immediate effect. We hence compensated for the difference between the current and the post GST ex-showroom prices for our entire Made in India model range. The GST measures in India ensured we took the customer into confidence and were transparent with them. This meant we passed on these benefits at our own cost and won the customer’s trust. We set the trend of being the first carmaker to pass on the actual GST benefits to the customers and not merely insurance and service packages. We are glad to see others followed us.

In the 2016 Union Budget, the tax collection at source for luxury cars was implied on vehicles above Rs 10 lakh, and we hoped the GST Council would adopt the same logic while considering the implementation of cess, if they decided to implement one. We also hoped that the council would not forego of the fact that if it chooses to set a higher price barrier for implementing the cess, it has lesser scope of optimising the tax collection overall.

Any deviation from this would seem to have been unfair and defy logic. Even a car below Rs 10 lakh would be in many ways a luxury item for many customers, then why adopt this unfair approach, which specifically seems to be aimed at luxury vehicles only.

Currently, it appears we are drifting far away from the growth projection of 80,000 units of luxury cars a year, which seemed quite achievable years back, due to the unfavourable market conditions; contributed largely by arbitrary policy decisions like continuous taxing of luxury cars, among others.

Today, we are clubbed with demerit goods and are bound to be constricted to small volumes. This is highly unfortunate, as we limit further employment opportunities and contribution to the economy simultaneously loses out in terms of potential revenue generation.

The government’s decision to increase the cess again within a month of implementation without even giving enough time for us to analyse the outcome is not a confidence evoking step and I would like to believe that it somehow overlooks the contribution we make to the auto industry and to the economy.

I am sure the government knows well that, had there been a fair taxation, the luxury industry which has so much potential in the country could have grown and contributed more to the GDP, employing more skilled people and also investing more through expansion.

I am usually optimistic, but it often appears now that the luxury car industry has been treated rather unfairly and we should let go of this socialist attitude and be more open to the contribution of luxury car makers in terms of innovation, technology, investments and jobs.

If this approach of continuously taxing the luxury cars persists, I am sure our contribution to the total passenger vehicle market in India is bound to remain constricted. In contrast, in developed economies, the contribution of luxury is on a higher side and continues to rise gradually. GST thus remained an opportunity lost for the government to course-correct the stalled growth of the luxury car industry.

Hasty policy inconsistencies derail business continuity: Vikram Pawah, president, BMW Group India

Have luxury carmakers' hopes around GST been belied? Top honchos explain

Doing business in India has become much easier with GST removing multiple layers of taxation and administrative processes.

BMW has been the fastest to offer GST benefits and well-prepared much before the roll-out took place. GST will strengthen and foster growth in the country and benefit consumers at large.

However, immediate changes and fluctuations on motor vehicles cess will adversely affect the stability and growth of the automotive industry in India.

Today, BMW India is a fast-growing luxury carmaker. We have achieved this radical growth as a result of our all-round strategy, resolute approach in its implementation and our absolute commitment to our customers and their needs. But our primary goal is to grow the size of the luxury car market in India. We believe growth is more important than anything, even more important than being No. 1.

However, hasty inconsistencies in policy such as the abrupt cess roll-out after GST implementation derail business continuity and consumer confidence. We strongly believe that long-term stability in tax reforms and regulations are of paramount importance to foster growth of any industry in the country. A right and fair tax structure in GST will provide the necessary ingredient to drive the growth of this segment and its contribution towards overall economic growth.

The global automotive industry is witnessing a paradigm shift from the conventional combustion engine to sustainable mobility solutions. This change is inevitable but will not happen overnight. Therefore, a comprehensive policy framework implemented in a phased manner is essential to nurture the development of emobility and its success in India.

Premium automotive manufacturers like BMW are already progressively taking a lead in e-mobility with radical investments in innovation and technology. Plug-in Hybrid Electric Vehicles (PHEV) is the first step towards the eventual transition to Battery Electric Vehicles (BEV).

A framework that only supports BEVs will make it difficult for effective e-mobility implementation in India. Therefore, we believe, a balanced GST framework supporting both PHEVs and BEVs is required.

Article source: https://economictimes.indiatimes.com/industry/auto/news/industry/have-luxury-carmakers-hopes-around-gst-been-belied-top-honchos-explain/articleshow/61705276.cms

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