Cars may now come 5.5% cheaper

NEW DELHI: Look for cheaper cars after the budget. The passenger car industry is likely to see a double gain in the Union budget with customs duty on CKDs and components being cut from 30% to 25% and excise duty likely to be cut from the present 32% to 28%.
The move could mark major gains for consumers as prices would come down sharply if the proposed changes go through.
On current calculations, this could translate into a reduction of Rs 18,000-20,000 on a car costing Rs 5 lakh. Keeping in mind the additional customs duty also, it translates into an effective reduction of 5.5%.
The reduction in customs duty will also translate into gains for the CBU imports where duties will come down from the current 120% to 113%.
This implies gains for all the luxury cars which are being imported in CBU form in the Rs 15 lakh and upwards category. Cars with a high import content like Baleno and Altura which are manufactured here also stand to gain. Cars like the Corolla and Mondeo also have a high import content.
As import duties come down there is a cascading effect in terms of what amount excise is calculated and in turn the sales tax calculation which also gets reduced.
Keeping in mind all these taxes, there could be net savings of Rs 18,000-20,000 on mid size cars. These cars have an import content of close to Rs 30,000 on a Rs 5 lakh car.
The likely cuts are expected to boost demand in the passenger car industry, which posted nominal growth.
However, many manufacturers are bleeding profusely on account of the stiff competition being witnessed and discounts of Rs 30,000 and upwards becoming standard fare.
Car manufacturers will continue to see severe pressure on their bottomlines even in the current year with competition become tougher and tougher and consumers focusing on big ticket purchases like homes.