Duty bound: Car makers to hike prices from July 1?

The prices of cars and two-wheelers may go up by 4% to 6% next month as the tenure of the excise duty cut announced in the interim budget in February lapses on June 30.

Auto makers are worried over the impact of this move.

"We hope the government will extend the current notification till July 7," said Rakesh Srivastava, vice-president sales and marketing, Hyundai India. "Else we will have to bill on revised excise rates which means increasing prices on July 1."

The new NDA government is widely expected to retain the excise cuts when it presents its first full budget in the first half of next month. It is the few days in-between that may create an impasse of sorts, with car-makers saying they will not be able to foot the bill for the increased taxes for longer than 3 or 4 days.

"Since excise cut is till 30th June, whatever is the duty on July 1 will be levied till July 7," said Jnaneswar Sen, senior vice president, marketing and sales, Honda Cars India.

Some car makers however said they would wait till the budget on July 7 and not increase prices on July 1, as customers would prefer to wait for a week. They felt that those companies that could not hold off for a week, were posturing, in the hope that customers would choose to pre-empt the hike and buy cars in June itself.

"I think it is a given that the rate of excise duties will be retained as there has been no improvement in market sentiment," said a company official who requested anonymity. "Companies may say they would increase prices on July 1 but that is only an attempt to sell more cars in June. It will be illogical for them to increase prices on July 1 only to reduce them on July 7."

The industry has already deferred a planned round of price hikes in April due to the sluggish market growth. Passenger vehicle sales declined for the second consecutive fiscal in 2013-14. The excise cuts had brought little respite, with sales declining in April this year. May however saw slight growth after election results were announced.

"Last month provided the first hint of a revival. After battling slowdown for 2 years, no manufacturer would want to spoil it by raising prices now," pointed out another industry insider.