The increase in excise duty by the Indian government will surely cause a lot of negative sentiment in the industry. Expect automakers to show their displeasure on the same.

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Luxury cars will see a massive increase in prices from 2015

New year is here in the next 26 hours and there is some bad news for prospective automobile buyers. Prices of both cars and bikes are set to increase and not just marginally. Other than the usual increment in prices from the start of the year, automakers will also pass on the burden of the additional excise duty which will be levied on automobiles from the 1st of January 2015. The Government of India has decided to not extend the excise duty concession which was initiated by the UPA government.

The excise duty was cut in February at the interim budget (till 30th June), being reduced to 8 percent from 12 percent for small cars and 2-wheelers, 20 percent from 24 percent for mid-size cars, 24 percent from 27 percent for large cars and 24 percent from 30 percent for SUVs. The step was taken to boost the automobile sector which was going through its worst time with sales seeing a massive decline. The Modi led government extended the excise duty concession by six months and won’t offer the reduced excise duty any further.

The automobile sector is one of the biggest in terms of monetary contributions to the exchequer but still the government has decided against keeping the lower excise duty. For buyers, it’s a double whammy because not only will car prices be increased owing to increase in input costs (which the manufactures state), the increase in excise duty will make 2015 manufactured vehicles significantly more expensive. This move is bound to have a negative effect on the automobile sector. On the plus side, dealers won’t have a tough time in clearing 2014 manufactured cars and bikes as they will be much cheaper to buy.

A slew of automakers announced price hikes applicable from 1st January. The cause of price hike is often increase in manufacturing costs or currency differences but one of the major reasons is stock clearance. You see, if manufacturers don’t increase prices in the new year, no one will opt for the last year’s model which the dealer has in stock. Thus the company will have to offer lucrative discounts as most people are inclined to get the new year model for better resale. That’s why, every year you see automakers announce a price hike in a bid to lure buyers to buy last year’s model as December is the worst month for the industry.

With excise duty on bikes also increased, all 2-wheelers will also get more expensive. The irony is, Honda announced the prices of the CB Unicorn 160 whose deliveries will start from January, that bike will also see an upward price revision. Honda always launches products much before starting deliveries, in this case it makes no sense for the company to produce bikes in December while selling them in January. However, it’s too late for companies to stock up inventory at the lower excise duty rate. Excise duty is charged when the vehicle leaves the factory.

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