GST Cuts Fuel Two-Wheeler Sales; Car Market Struggles with Supply

GST Cuts Fuel Two-Wheeler Sales; Car Market Struggles with Supply

Issue: To analyze the differential impact of the Goods and Services Tax (GST) rate rationalization and the festive season on the two-wheeler and four-wheeler segments in the automotive market, noting the reasons for the uneven recovery.

Facts:

• The GST rate cut was declared and resumed supply around September 22, coinciding with the festive season (Navratri to Diwali).
• The GST cut provided a reduction of ₹7,000–20,000 across various models of two-wheelers.
• The data focuses on the Gujarat auto market during the September-October festive period.

Decision:

During the September-October festive season, two-wheeler sales surged dramatically (26.7% growth), making them the “real festive winners,” while car sales dipped marginally (1.9% decline) due to severe supply bottlenecks and inventory clearance issues.

Key TakeDowns:

• Two-Wheeler Boom: Two-wheeler sales surged by 26.7% in Gujarat, driven by the GST cut which made EMIs more affordable for middle-class and lower-middle-class customers, aided by strong rural demand and festive bonuses.
• Car Market Struggle (Supply/Pre-Sales Issue): Car sales saw a slight decline of 1.9%, despite high underlying demand. This struggle was mainly due to:
  1. Supply Bottlenecks: Original Equipment Manufacturers (OEMs) held back dispatches for nearly 20 days after the GST cut declaration, leading to stock shortages during Navratri.
  2. Pre-GST Discounting: Dealers avoided compliance recalculation by clearing old inventory with deep discounts (up to ₹1.75 lakh on a mid-segment car) before the new rates took effect. This “pre-GST sale” cannibalized the expected festive sales window.
• Long-Term Outlook: Despite the short-term supply chain and inventory issues, overall demand has revived across all segments, and the long-term outlook remains bullish, though the supply chain needs another 60-65 days to normalize.
• Finance Penetration: Finance penetration in the two-wheeler segment increased from 47% to 51%.