Why a Bigger Drop in Prices of Existing Automakers Compared to Newcomers?

The government recently announced the much-awaited Auto Policy 2021-26 offering tax concessions on various vehicle segments resulting in a considerable decrease in prices of locally assembled vehicles. Prices have come down by Rs 50,000 to up to Rs 400,000 depending on the vehicle with revised prices to be effective from the 1st of July 2021.

Related: Car Prices Reduced Amid Tax Cuts

Government has reduced the GST from 17% to 12% and abolished the 2.5% FED and ACD on cars up to 1,000cc engine capacity. Then for cars from 1,001cc to up to 2,000cc, FED has been reduced from 5% to 2.5% while 7% ACD has also been reduced to 2%. For vehicles above 2,000cc the 7.5% FED has also been lowered to 5% while 7% ACD has been reduced to 2%.

However if you notice, prices of cars sold by existing automakers (Suzuki, Toyota & Honda) have been lowered by a greater margin compared to newcomers. For example, price of Toyota Yaris has been reduced by up to Rs 110,000 whereas that of Changan Alsvin has been reduced by up to Rs 61,000 only. Price of Kia Sorento has been dropped by up to Rs 196,000 whereas that of Toyota Fortuner has been reduced by up to Rs 400,000. Similarly the price of Suzuki Cultus has witnessed a reduction of up to Rs 155,000 compared to which Kia Picanto’s price has been slashed by Rs 127,000.

So why is there a bigger drop in prices of existing automakers compared to newcomers?

According to a company official representing a new entrant, this is because the Additional Customs Duty (ACD) enforced by the government was contested by the newcomers. He said:

“The new car companies that came after Auto Development Policy 2016-21 contested the ACD because government promised it will not change anything in the industry during the period. So, when it imposed ACD, we contested it and were not paying it. So, removing ACD doesn’t have any implications on new car companies.”

Related: Should Car Prices Be Further Reduced?

Although various circles have been debating that the price reduction isn’t sufficient enough considering the amount of increase which was made during the last couple of years. Still the price reduction due to reduced taxes is a welcome step by the government which should result in increase in sales of locally assembled vehicles. However in order to pass a better impact on the customers, we believe automakers should make a further reduction in prices especially in wake of Rupee-Dollar parity.

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