Big and imported cars become dearer
For all those who were planning to splurge big bucks on a car with a 1500cc plus engine, be ready to shell out an extra Rs. 15,000 at least. The Government on Friday increased the central excise duty on large cars, multi-utility vehicles (MUV), and sports utility vehicles (SUV), with engine displacements in excess of 1500cc. This move by the Government is likely to take a toll on the Indian automobile industry, which as it is has been going through a lean patch. In addition to the existing ad valorem rate of 24 percent, cars like the Skoda Octavia, Honda Civic and Maruti SX4 would now be charged a specific rate of duty. For cars in the 1500cc to 1999cc engine category, an additional excise duty of Rs. 15,000 has been levied. Cars with engine capacity in excess of 2000cc have now become dearer by Rs. 20,000. Last year, nearly 4 lakh cars from the 1500cc to 2000cc and above category were sold in India.

However, there is respite for people who were planning to buy a car with an engine capacity of under 1500cc, as they have been spared the Governments excise duty hike. Imported cars like Toyota Camry, Honda CR-V and Hyundai Tucson were not as lucky though as the excise duty hike will also apply on imported cars, as the CVD component will go up by the same amount. Imported high-end cars like the BMW 7-Series, Mercedes SLK, Toyota Prado, BMW X5 and Mitsubishi Montero are likely to cost a further Rs. 50,000.

Price of big cars & SUVs to shoot north by Rs. 20,000 to 50,000
As of now the carmakers are in the midst of working out the new prices, but one must be prepared to accept the fact that the effect of the excise hike on big cars is going to be more than originally anticipated. It is most likely that from Monday bigger cars and SUVs will carry an additional Rs. 20,000 to Rs. 50,000 on their price tags.

Many people see the government's decision to hike the excise duty on bigger cars as a direct move to curb the gradually increasing demand for fuel. They reckon that with bigger cars, which generally are less economical becoming more expensive, people will resist from buying them.

Mahindra & Mahindra likely to be worst hit
The worst affected by the Excise duty hike is likely to be Mahindra & Mahindra, followed by Toyota and Tata Motors. All the cars in the M&M stable come with a 1500cc plus engine and therefore will cost more. As a result of the revised excise duty, M&M is going to make the Government Revenue bigger by a good Rs. 206 crores. Toyota and Tata Motors too are heavily involved in the utility car segment and will make the Government richer by Rs. 98 crores and Rs. 92 crores respectively.

Price gap between Honda City and Maruti SX4 narrows
There is one car though that has escaped the butcher's knife or rather the Governments knife by a whisker. The Honda City, which has a 1497cc engine, is exempted from the excise duty hike as it falls under the 1500cc engine category. Good times seems to be around the corner for the City which in recent times had seen a chunk of its market being gulped by the cheaper and more powerful SX4. The entry level Honda City comes with a price tag or Rs. 6,77,000, while its counterpart in the SX4 range costs Rs. 6,38,000, a difference of Rs. 39,000. There is a price gap of Rs. 91,000 between the top-end Honda City VTEC that is priced at Rs. 8,00,000 and the SX4 ZXI, which comes for Rs. 7,09,000. Post excise duty hike of Rs. 15,000 on the SX4, the difference between the two cars have diminished by Rs. 24,000 and Rs. 76,000 respectively. As of now, it is not clear if Maruti Suzuki India, the country's largest automaker is going to offer discounts or bring down the price of the SX4 to counter the marginalisation of the price gap with the Honda City.  It is worthwhile to mention that in the financial year 2007-2008, Maruti Suzuki emerged the leader in the mid-size segment with 49,335 units sold and a market share of 21.85 percent. In comparison, Honda saw its market share being reduced to 17.95 percent for the financial year ending March 31, 2008, as compared to 20.55 percent in the financial year 2006-2007. Will Maruti Suzuki India retain the top-honour in the mid-size segment for the financial period 2008-2009, or will there be a new leader in the form of Honda? Only time will tell.

Automobile industry in shock
Last Friday's excise increment came as a rude shock to the mid-size and luxury car segments, and all the more so after two rounds of excise duty reduction in the small car segment. The mid-size and luxury car segments as it is have not faired well in the first two months of the fiscal year, and an excise duty increment was the last thing they needed. The mid-size segment so far has managed a growth of only 10 percent, while the small car segment has grown by a good 20.5 percent. The luxury car segment faired the worst; it saw its growth decline by 11.5 percent. An excise duty hike is not where the woe ends for the customers as they will also be required to pay 12.5 percent VAT, 2 percent CST, education cess and octroi, which will be charged over the additional specific excise duty. Add to that the higher insurance premium and road and registration charges, which are charged on the cars ex-showroom prices and what you have, is a potential nightmare.

Dealers in a daze
Many dealers have been trying to pass on the higher cost to the customers and there prevails great confusion as to who will bear the cost of the excise hike. However, the question of the customer bearing the cost does not arise as the cars available with the dealers now were sent to them before the excise jump had taken place. The excise hike is applicable only on new cars that leave the factory and not on stocks already with the dealers or the cars, which are on the way to the dealers. Ergo, charging higher price for cars bought on the previous excise rate will be highly unethical on the dealer's part.

The dealers on the other hand are of the view that, when the Government had slashed the excise duty on small cars on February 28, they had started selling the cars at the revised rate from the very next day. They reason that the same procedure ought to be applicable after Fridays excise hike. Moreover, the dealers have an agreement with the customers, which states that the customer would have to pay the price applicable on the date of delivery.