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Passenger cars and utility vehicles: State of the industry (2000-01)

Cars, UVs and two wheelers: Tariffs

	Tariffs (per cent)
	Customs		Excise
	2000-01	2001-02	2000-01	2001-02
Two wheelers (< 75 cc)	44.0	40.4	16.0	16.0
Two wheelers (>75 cc)	44.0	40.4	24.0	16.0
Cars	44.0	40.4	40.0	32.0
Passenger transport
- 7 to 12 seater1	44.0	40.4	16.0	16.0
- 13 seater and above1	44.0	40.4	16.0	16.0
Steel items	32.6-44.0	30.0-40.4	16.0	16.0
Engines and engine parts	44.0	40.4	16.0	16.0
Other components	21.2-44.0	19.6-40.4	16.0	16.0

1 Excluding driver

Source: CRIS INFAC

• During the April-December 2000 period, demand for passenger cars and utility vehicles declined by 5.6 per cent, due to an increase in prices as a result of sales tax rationalisation, lack of new model launches in the economy segment, a slow-down in the economy, and an increase in interest rates.
• Prices in nearly all segments increased by around 0.5-3.5 per cent, due to an increase in the cost for making the vehicles Euro compliant.
• Operating profit margins of car manufacturers declined, as compared with those during the corresponding period in 1999, due to a decline in sales and an increase in costs.

Two wheelers: State of the industry (2000-01)

• During the April-December 2000 period, demand for two wheelers increased by 3.4 per cent. Motorcycle sales increased by 26 per cent, due to high fuel efficiency (especially of models with 4 stroke engines), increasing affordability due to the availability of finance, high load carrying capacity, increased number of new models in the market, and increased purchasing power of the youth. However, scooter sales declined by 25.9 per cent.
• In the first half of 2000-01, operating profit margins of two wheeler manufacturers declined significantly, as compared with those during the corresponding period in 1999-2000.

Passenger cars, Utility vehicles and Two-wheelers: Budget impact

Impact factors

Company name	Impact	Impact factors
Bajaj Auto Limited	Pos	C, D, F
(318.50, 324.75)
Daewoo Motors India Limited	Pos	A, B, E, F
(5.85, 6.00)
Hero Honda Motors Limited	Pos	C, D, F
(716.25, 812.85)
Hindustan Motors Limited	Pos	A, B, E, F
(7.00, 7.10)
Hyundai Motors India Limited	Pos	A, B, E, F
(not listed)
Kinetic Motor Company Limited	Pos	C, D, F
(52.75, 58.00)
L M L Limited	Pos	C, D, F
(36.65, 37.30)
Majestic Auto Limited	Neut	D, F
(14.15, n.a.)
Maruti Udyog Limited	Pos	A, B, F
(not listed)
TVS Suzuki Limited	Pos	C, D, F
(178.00, 206.05)

n.a.: not available.
Figures in brackets indicate the closing share prices, on February 27, 2001 and February 28, 2001, respectively.
Pos= positive Neg= negative Neut= neutral

Source: CRIS INFAC

A: The reduction in the excise duty on cars is expected to have a positive impact on producers. Demand for cars is likely to increase significantly, since the reduction in the excise duty is expected to be passed on to customers, given the decline in sales during the period April-December 2000.

B: Although passenger cars and utility vehicles imports are expected to be brought under the OGL from April 2001, under the WTO agreement, the customs duty of 40.4 per cent is not expected to result in significant imports. This is due to the effective rate of duty for import of new vehicles, which is around 85 per cent for cars and around 63 per cent for utility vehicles. The effective rate of duty for used vehicles is around 181 per cent for cars and 147 per cent for utility vehicles.

C: The reduction in the excise duty on two wheelers (above 75 cc engine capacity) is expected to have a positive impact on scooter and motorcycle producers. However, Majestic Auto would not be impacted, since it is has a large presence in the below 75 cc segment.

D: Given that two wheeler imports are expected to be brought under the OGL from April 2001, under the WTO agreement, the customs duty of 40.4 per cent on import of new two wheelers could have a marginally negative impact on producers. The total effective rate of duty for second-hand two wheelers is around 147 per cent.

E: Reduction in the customs duty on steel items and other raw materials, due to removal of surcharge, is expected to have a marginally positive impact on cars and utility vehicle producers. On an average, steel items account for 10 to 15 per cent of the cost of raw materials. Imports account for around 25-35 per cent of the total expenditure on raw materials.

F: The reduction of surcharge on corporate tax, from 13 per cent to 2 per cent and the expected decline in interest rates, is expected to have a positive impact on producers.

Rediff-CRISIL Budget Impact Analysis
Budget 2001

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

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