Even as automobile companies are bracing for the BS-VI emission standard compliance, a rise in goods and services tax (GST) rates on tractors and electric vehicles could be a big blow to the industry, said Pawan Goenka, managing director of Mahindra and Mahindra (M&M).
M&M said that there was no recovery in sight yet in automobile industry, which has witnessed fall in demand and sales this year.
Goenka said on CNBC-TV18 on Thursday that even though the industry as a whole was down, M&M has managed to perform, and in most cases, slightly better than others.
When asked how goods and services tax (GST) rate hike would impact demand, he said: “I see concern is in two segments. One is the tractor segment, where the current GST is 12 percent and it is being talked about that current 12 percent may become 18 percent or may become 15 percent, that would clearly be a big blow to tractor industry because if 12 becomes 15 or 18, that is a significant increase in price of tractor."
The second concern is on electric vehicles (EVs) where the GST rate now is 5 percent. If the 5 percent goes up to 8 percent or 12 percent that will obviously be a big blow, he said
He said that there were indications that demands were flattening. "Till September, we had a significant degrowth but for the industry, there is about a 5 percent increase we have seen in retail numbers in October and November combined." There are indications that the company may continue to see small positive retail numbers going into the next quarter, he explained.
M&M has witnessed a small increase in market share in passenger vehicle segment, small commercial vehicles (CV), trucks and tractors year-to-date (YTD) till November, he said.
The only segment where the company has witnessed a drop in market share is utility vehicles (UV) segment because of a very large growth in UV segment, he added.
Goenka said: “The discount level as far as I can see is about the same as what it was last year December. Some vehicles maybe little more, some maybe little less but you won’t see a huge discount coming into December to clear the inventory and the prices have not been increased for quite some time."
"One-two percent price hike that you see from various automakers gets lost in the discounts that are being given. Discounts that are prevailing is 5-7 percent. Everybody will balance the discount based on the demand. So I won’t read too much into the price hike that has been announced by various automakers.”
Goenka said that the one segment in the industry that he was still concerned about was medium heavy commercial vehicle (MHCV) segment where the degrowth as of now was as much as 45-50 percent. In October and November, there was no cheer for the heavy commercial vehicle industry when the degrowth was as much as 60 percent.
"Here the discount levels are as high as Rs 6,00,000-7,00,000 and at that level of discount we are not selling. Truck demand will depend on economic activity and not on what happens in terms of pricing and incentive and even small intervention for a scrappage policy,” Goenka further added.
He said, “Our people in the field feel that the inquiry levels are increasing and they do feel that we would see a little bit of a growth (in tractor sales) perhaps in December.”