GST Rate Cut Eases Discount Pressure for Truck Manufacturers
Issue: To analyze the impact of the Goods and Services Tax (GST) rate rationalization on the pricing strategy of truck manufacturers, particularly regarding the need for aggressive discounts to attract buyers in the highly competitive commercial vehicle (CV) market.
Facts:
- The GST rate on vehicles, including Medium and Heavy Commercial Vehicles (M&HCVs), dropped from 28% to 18% as part of the recent GST revision.
- Prior to the GST revision, M&HCVs priced around ₹50 lakh typically carried steep discounts of up to ₹5 lakh (approximately 10% of the sticker price) due to fierce competition.
Decision:
The GST rate cut resulted in a drop in the official price of commercial vehicles and significantly eased the pressure on Original Equipment Manufacturers (OEMs) to offer steep discounts, allowing them to scale back discount levels substantially.
Key TakeDowns:
- Discount Reduction: OEMs found room to scale back discounts substantially, reducing them to just about 2% in some cases, which is a drop of at least 5 to 6 percentage points compared with previous levels.
- Marginal Net Cost Change: While the tax cut lowered the base price of trucks, the simultaneous reduction in discounts meant that the overall net cost to customers changed only marginally, helping the OEMs regain margin while passing on only the statutory minimum tax benefit. * Used CV Prices Stable: Notably, the expected fall in second-hand commercial vehicle prices did not occur, with resale values holding steady and repossession losses remaining negligible.
- Long-Term Trend: Although some dealers view the drop in discounts as temporary, the general sentiment is that the tax rationalization provides a structural relief that improves the pricing power of truck manufacturers.
Source :- Source :- Times Of India