Auto demand has remained disappointingly poor since the last six months forcing companies including Maruti Suzuki and Mahindra & Mahindra (M&M) to take unscheduled production holidays The Society of Indian Automobile Manufacturers (SIAM), the apex lobby body of vehicle makers, will meet the government to seek a reduction of the Goods and Services Tax (GST) on automobiles to 18 percent, down from the current 28 percent.

Rajan Wadhera, president, SIAM said, "We have sent our recommendations as an industry asking for the GST to be reduced to 18 percent from 28 percent because there have been many regulatory requirements that have come in the last two and half years which have pushed the costs up. This is why demand has come down.” The demand for automobiles has remained disappointingly poor since the last six months, which has forced companies including Maruti Suzuki and Mahindra & Mahindra (M&M) to take unscheduled production holidays to avoid the piling up of inventory. Auto manufacturers are looking to drive sales with the help of discounts, which have surged to 15 percent on the cost of the vehicle as compared to an average of around 8 percent. While discounts have come down slightly, there is no visible improvement in retail demand.
Vehicle makers are thus pitching for a tax cut on automobiles hoping for a revival in consumer sentiment. A 10 percent reduction in GST will give a boost to demand. The price of a hatchback costing Rs 4,50,000, for instance, will come down by around Rs 50,000. Responding to a question from Moneycontrol on whether the government should look at providing a stimulus package to the auto industry Pawan Goenka, managing director, M&M said, "Over the last five years every year the growth of passenger vehicles has come down. SIAM is pretty certain that auto will be on top of the government’s agenda."
"Automotive is a fairly big component in terms of investment and employment for the country. So I am certain something will happen. One factor is GST that SIAM is talking about," he said. After the start of the financial meltdown in 2008 triggered by the collapse of Lehman Brothers, the UPA government had slashed excise duty by six percent, which helped reduce costs and spur demand.
SIAM is likely to put forth ground realities before the government in its presentation advocating a tax cut. The body will likely raise the issue of several dealership shutdowns in the past several months and the likelihood of further shutdowns this year if demand does not revive. Due to poor retail off-take inventories, especially of two-wheelers, surged to three times their usual average of 30 days. As for passenger vehicles such as cars and SUVs, inventory days increased to 55-60 days, up from the usual 25-30 days.
The demand for a stimulus from the sector comes at a time when the industry is less than 10 months away from embracing Bharat Stage VI (BS-VI) emission norms, which is when the prices of all vehicles will increase. A few months before that, the mandatory installation of airbags and sensors will make existing cars and SUVs pricier and will restrict the ability of companies to hike prices to offset a hike in material costs. Further M&M said that it has increased its three year capital expenditure (capex) guidance to Rs 18,000 crore from Rs 15,000 crore announced last year. Of this Rs 12,000 crore will be for capex and Rs 6,000 crore will be for investment in subsidiaries and other investments such as acquisition and mergers.
M&M is investing in building a pipeline of new products purely for itself as well for its partner Ford Motor Company. The two companies are working on developing new SUVs, electric cars and new mobility technologies. Besides Goenka also mentioned that M&M will expand its Chakan facility 'significantly' even as the company's other plants like Nashik, Haridwar, Zaheerabad and Kandivali, operate at full capacity. A new paint shop and chassis line will come up at Chakan, which is also M&M's biggest and most modern plant.

Source:moneycontrol