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Big cars cost less abroad

Surajeet Das Gupta

If you thought global bestsellers like Honda Accord, the Mercedes C Class and Hyundai Sonata are available in India at affordable prices, think again. The same models are sold abroad at a much cheaper price. In fact, in India you are paying up to 25-100 per cent more than your counterpart in the US, Australia or Thailand.

For example, Mercedes Benz, which represents the top end of the luxury segment in the country, has introduced a bevy of new models, all of which happen to be 65-110 per cent costlier than similar models in Europe.

Honda sells various models of its City at 18-55 per cent higher prices than in Thailand, the only other market were the product has been launched apart from India. The Honda warhorse, Accord, however is expensive by only 5-10 per cent than its Thai counterpart.

And if the Japanese and the Germans are doing it, can the Koreans be far behind? The recently-launched Hyundai Sonata comes with a price tag 70 per cent heavier than in the US.

This definitely does not mean that Indians have more money in their hands than consumers in the US. It is a combination of high taxes and a deliberate ploy by companies to make bigger profits in a low volumes market.

On their part, automobile companies say in one voice that it is because of the high taxes-which apparently accounts for more than 50-65 per cent of the total cost of production. And with smaller volumes leading to high import content and a slow indigenisation process, the scope for pruning production costs are minimal.

But some industry analysts privately admit that some car companies are keeping prices higher to rake in bigger margins. Says an industry observer: "What else can explain prices being over 100 per cent higher if the tax element, by their own admission, is not more than 65 per cent of the total cost. So prices should be higher only by 65 per cent."

So if costs are high, is it cheaper to import completely built units rather than setting up a manufacturing facility in India. The answer is no, but it might make sense for some players looking at small volumes in India. For instance, the FOB value of a Sonata is around $13,000. Add insurance and freight charges and the price goes up to $13,520.

The total incidence of import duty in India is at 120 per cent (which includes a basic customs duty of 60 per cent, countervailing and other duties). Add to this marketing and warranty costs and the Indian price would be over $31,000 or Rs 1.5 million-much higher than the price announced by Hyundai in India.

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