Luxury car sales likely to fall? Know here the reasons

Luxury car makers Audi, Jaguar Land Rover and Mercedes-Benz say sales in India in the ongoing fiscal will slow down due to increased prices of vehicles after hike in import duty in the Budget. The companies say overall industry sales are likely to remain either flat or in low single digit against an earlier expectation of double digit growth. In the Budget for 2018-19, Finance Minister Arun Jaitley had increased custom duty on CKD (completely knocked down) imports of motor vehicles, motor cars, motor cycles from 10 per cent to 15 per cent.

The government had also raised custom duty on specified parts/accessories of motor vehicles, motor cars, motor cycles from 7.5 per cent to 15 per cent. Subsequently, the luxury car makers have passed on the increase in the duties to customers from the beginning of this month through price hikes ranging from Rs 1 lakh to Rs 10 lakh, depending on model. "The effect of new pricing has not yet come in...We don't expect the market to grow in a robust manner this fiscal. It may be be low single digit growth because of the increase in the duty rates," Jaguar Land Rover India President & Managing Director Rohit Suri told PTI.

He, however, said JLR India expects its sales to grow in double digits again in the ongoing fiscal. Last fiscal, JLR India posted 83 per cent jump in sales at 4,609 units against 2,514 units in the previous fiscal. "Such high growth is not possible again this year...It is expected that this will not be an easy year," Suri said, adding that the impact of the high GST rates gets further accentuated by the hike in import duties. Expressing similar views, Audi India Head Rahil Ansari said, "With the implementation of the Union Budget, it makes the cars more expensive...Our point is very clear that we were planning a double digit growth but now we expect a flat year this year. We will still try to maximise our volume".

Audi India had posted sales of 7,647 units in 2017-18 as against 7,101 units in 2016-17, up 7.7 per cent. Ansari further said the market is stabilising now after the shock of GST and cess increase for the luxury car. Last year in September, cess on large cars were increased to 20 per cent from 15 per cent, over and above the GST (Goods and Service Tax) rate of 28 per cent. For SUVs it was hiked to 22 per cent from 15 per cent. Expressing similar views, Mercedes-Benz India Managing Director & CEO Roland Folger said, "It might be a challenge to sustain this momentum in the coming quarters and we are cautiously optimistic".

Mercedes-Benz India reported 22.5 per cent growth in sales at 16,236 units in 2017-18 as against 13,259 units in 2016-17. Folger said that already there was advancement of purchases due to impending price correction, triggered primarily by the increase in basic customs duty. Seeking lower taxes on luxury cars, he said, "As the luxury industry volumes are comparatively low, the focus should remain on helping the industry grow by creating demand. A rise in demand would translate in increased production and thus, lead to significant revenue generation".