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Car sales may tumble this month due to GST linked issues

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The impending rollout of the Goods and Services Tax (GST) could be a major bump for Indian automobile companies. Sales volumes of automobiles have witnessed steady growth in FY18 and demand has gone up strongly. However, the month of June may see a drop up to 8% with several dealerships reluctant to order new inventory till the 1st of July, 2017 when GST will be implemented in India. The whole idea is now to reduce input credit losses on several levies, which will be substituted by the single GST indirect tax.

Demand for models on Maruti Suzuki’s waiting list may offset the sales decline to same extent but most automobile industry experts concede that there will be a transition linked impact, which could vary between 5-8% in the form of a decline in sales volumes. Manufacturers are lowering their shipping of vehicles to dealerships since they will lose on tax credits. The Government has already provided for refunds of excise duty on stocks which are unsold beyond the 1st of July, 2017 but there is no refund provision for infra cess, central sales tax and the national calamity contingent duty.

The total impact of all these levies in terms of losses may cover 3-7% of the total cost of any vehicle. Most automobile companies have already promised financial assistance to their dealerships in order to smoothen this transition phase but the effort is now clearly directed towards liquidating stocks. As per estimates, there are 300, 000+ vehicles which are waiting to be sold in the Indian market. All carmakers have therefore come out with attractive offers and discounts in a bid to clear stocks as much as possible in June, 2017.

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Wholesale numbers should go down by 6-8% for June according to senior executives of automobile companies. Maruti Suzuki is the only company seemingly well positioned with regard to its inventory. The company has numerous models like the Swift, Dzire, Baleno, WagonR and Vitara Brezza on a waiting list. Customers are taking cars on delivery and the company is still able to bill its vehicles to its dealerships. Even if Maruti Suzuki scales up its operations, wholesale passenger vehicle sales will go down by 5-7% in June since dealers and most manufacturers will look to clear current stocks according to experts.

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According to the senior vice-president & director (sales & marketing) at Toyota Kirloskar Motor, N Raja, customers are postponing vehicle buying plans till the rollout of GST and this impact will be bigger in June, 2017 itself.

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