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Car manufacturers set to keep off CBU lane

BS Corporate Bureau

Is it cheaper to import cars as completely built units rather than assemble or manufacture them in India? The answer is an unanimous no from car manufacturers. The reason is that it is cheaper to manufacture locally even if it is only a mere assembly line operation rather than go for direct imports. Of course it is a different matter if a company merely wants to sell small volumes in the Indian market and not invest in a production facility. Prices of cars would have been more than double of what the local cars cost today had they been imported directly from international market.

According to the Society of Indian Automobile Manufacturers even though basic peak customs duty on imported cars has been cut from 85 per cent to 60 per cent in the Budget, the total incidence of the tax accounts to around 120 per cent (as it included basic customs duty, countervailing duty and special additional duty. Add to this marketing, dealer and warranty costs of 7.5 per cent and top it with a 12 per cent sales tax --the price of the car in India imported from the US or Australia or even Thailand would be much higher.

However companies which do assemble or manufacture the product even by going in for CKD or SKD kits have to pay a basic customs duty of 35 per cent apart from a countervailing duty which ranges from product to product. According to SIAM, the total incidence of tax ranges between 62 per cent and 70 per cent -nearly half of that for a CBU.

Of course the prices in the US or other international markets is between 25 per cent to sometimes over 100 per cent cheaper than that in India. Auto companies say that the freight on board value of a foreign car can be arrived roughly by knocking of around 10 per cent to 15 per cent on the on road price in that country, which would include component of tax, dealer costs amongst others. Of course there are some manufacturers who could knock off even as much as 30 per cent of the on-road price if they want to gain entry in a new market but that would mean they would be marking and entry into the country at a loss. Add to this cost of 2 per cent for freight and insurance for its export to India and you arrive at price of the car before duties are paid in India. Once the Indian duties are added the price of the international model becomes much higher than the Indian counterpart.

For instance the recently launched Honda Accord would have to be priced over at Rs 2.7 million even though its international price was only Rs 1.2 million much lower than the Rs 1.5 million to 1.6 million which is the price of the car on-road in India. The Thai Lancer Mitsubishi model would have to priced at around Rs 1.1 million instead of the Indian price of Rs 740,000 to Rs 860,000 on-road.

Says B V R Sub executive director of Hyundai Motors India: "It obviously makes more sense to have a manufacturing operation in India for the high end cars rather than import them as that would be expensive considering the duty structure. We already have a facility for the Santro in India so we already have capacities which we can use". Avers a Maruti Udyog Ltd spokesperson: "As a rule it is cheaper to manufacture the car in India rather than importing it directly".

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