The Hindu Business Line : Auto cos, dealers to write off stock losses with excise cut

Mumbai, Dec. 8 The four percentage point excise duty cut across all vehicle categories announced on Sunday could see auto manufacturers and dealers losing at least Rs 250 crore on sale of existing stocks, which are in transit or at showrooms.

This is because companies have coughed up the higher excise levy, which leaves them no room for any refund. Dealers bought these vehicles at the old price, which means they could now end up bearing the brunt of the loss.

It remains to be seen if companies share the burden or, in exceptional cases, offer to take the entire load in their books.

“We are already facing tough times and have been doling out generous discounts this month to liquidate stocks quickly. A further cut in price following the excise duty revision means that our already wafer-thin margins will come under greater pressure,” a section of dealers told Business Line.

Top industry sources estimate a 40-day inventory pile-up of cars, which translates into 125,000 units. “Even at a conservative excise reduction of Rs 10,000/car, the overall losses work out to Rs 125 crore. This will be written off by manufacturers and their dealers,” a top car company executive said.

In the case of two-wheelers, the estimate is a month’s stock in the pipeline, which means nearly 500,000 scooters and motorcycles from the top three producers – Hero Honda, Bajaj Auto and TVS Motor. The four per cent excise duty revision on motorcycle worth Rs 40,000 works out to Rs 1,600 and if this is taken as the basis for calculation for all two-wheeler inventories, losses would be close to Rs 80 crore.

The exercise becomes difficult in the case of commercial vehicle manufacturers because of the various categories involved, which also include cargo three-wheelers. With different price points starting from Rs 2 lakh to over Rs 15 lakh, industry sources say that they could be looking at anything over Rs 75 crore depending on the quantum of inventories. Further, companies have already gone in for partial shutdowns in an attempt to liquidate stocks but even this is not working “simply because sentiment is so bad”.

This, in a way, sums up the situation. The problem, at least from the viewpoint of cars and two-wheelers, is access to easy finance. With private banks charging upwards of 15 per cent interest coupled with a high down payment of nearly 30 per cent, buyers are just not biting the bait.

“We are worried that even this excise duty reduction will not help simply because the bigger issue is money. People have lost so much already in the stock market crisis and will not risk putting up their own cash to buy a vehicle now,” an official of a commercial vehicle manufacturer said.

Stock clearance

Interestingly, on the subject of excise duty cuts, this is not the first time that companies have found it a nightmare to rid themselves of stocks. When Budget 2008 reduced levels to 12 per cent on small cars and two-wheelers, inventories had to be sold at a loss except that market sentiment then was a lot better compared to the slow pace now.

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