Auto sector: Proposal to hike registration fees of new vehicles could aggravate slowdown

The recent draft notification by the Ministry of Road Transport and Highways, which proposes to increase the registration charge of new vehicles, is expected to further aggravate the slowdown in the automobile industry, according to industry experts.

The draft notification proposes an increase in registration charges of new vehicles by 10 to 20 times, depending upon the vehicle category, from the present level.

“Last year, vehicle insurance premiums were raised and the industry bore the brunt. The proposed hike in the registration charges of new vehicles will further aggravate the downturn in the market, negating most of the benefits we stand to gain in the upcoming festive season and the new launches scheduled for this fiscal,” Mayank Pareek, President, Passenger Vehicle Business Unit, Tata Motors, told BusinessLine .

New medium goods/passenger vehicles are proposed to attract a registration fee of ₹20,000, instead of the current ₹1,000. The registration fee for a new truck or a bus has been proposed at ₹20,000, as opposed to the current ₹1,500. The registration fee for two-wheelers is proposed to be ₹1,000, instead of the current ₹50. Similarly, the registration fee for a new car is proposed to be ₹5,000, up from the present ₹600.

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“With weak retail sentiments already hampering sales, the move is expected to put further pressure on retail sentiments in the coming months,” said Hetal Gandhi, Director, CRISIL Research.

The slowdown the auto industry has been a prolonged one, with almost all auto majors across segments, like passenger vehicles, commercial vehicles and two-wheelers, reporting double-digit decline in sales in the month of July.

Hardeep Singh Brar, Director, Sales & Commercial, Nissan India, said, “ With no respite in the Union Budget 2019, the proposed hike in registration fee will further dampen consumer demand. Instead, we urge the government to introduce measures that will support auto industry revival and growth in specific.”

Inappropriate timing

Automobile industry body Society of Indian Automobile Manufacturers (SIAM) also expressed serious concerns. “Such increase in the registration charges of new vehicles would further aggravate the market condition negatively,” said Rajan Wadhera, President, SIAM.

The increase in vehicle cost due to higher registration charges is expected to range between 1-2 per cent for two-wheelers, passenger vehicles or commercial vehicles, said Gandhi. “Although on a standalone basis, this increase is not expected to be significant, however, keeping in mind the steep increase in ownership cost across asset classes, this is expected to aggravate the already muted retail sentiments prevalent in the automobile industry,” she explained.

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Ashish Modani, Vice-President and Co-Head, Corporate Ratings, ICRA, drew attention to how the timing may not be appropriate to go ahead with such a proposal. “The policy is still in a draft stage. When the industry is reeling under a demand slowdown and is in a transition phase towards BS-6 emission norms, the additional cost burden due to a hike in registration charges will further impact customer sentiments,” he said.

EV push

On the possible reasons why the government could be pushing for such moves at a time like this when the automobile industry is already grappling with various changes and factors, Gandhi said that the government aims to promote electric vehicles — especially in two-/three-wheelers and taxis/cab aggregators — by exempting registration charges for all electric vehicles (EV).

“Increasing the registration charges for internal combustion engine (ICE) vehicles would aid in reducing the price gap between ICE (internal combustion engine) and EVs,” she added.

A Volvo Car India spokesperson affirmed the same. “Various incentives ranging from income tax rebates for the electric vehicle buyer, custom duty exemption on batteries to subsidy proposal for charging infrastructure is a clear indication by the government on the seriousness of promoting EVs in the country. Though the intent is good, at the same time a support mechanism should be established for the smooth transition from ICE vehicles to EVs,” he said.

As for commercial vehicles, the government has exempted registration charges for truck purchases made after scrapping an older truck. Increasing registration charges on new truck purchases and on renewal of registration for older vehicles is aimed at promoting scrappage of older vehicles, said Gandhi.

“However, we believe Rs. ~40,000 benefit on scrappage of 15-year and older trucks will not be enough to promote scrapping such trucks, as the current resale value of a 15-year-old truck is higher than the scrap value and the registration benefit. The move can only aid in scrapping of vehicles which are around 20 years and above since, their resale value will be near the scrap value of the truck. The number of such trucks will however be limited,” she said.

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