For car maker Audi India, it could mean curtains for its Indian operations if the Union finance ministry’s revised definition of completely knocked down (CKD) kits, announced in the Budget last week, is not rolled back.
The company’s global sales and marketing head, Peter Schwarzenbauer, in a press conference in Germany, said investments in India could be ‘scaled back’ or there could even be a ‘pull out’ from the market if the government accepts the proposals brought forward in the Budget.
Audi assembles the A4 and A6 luxury sedans, as well as the Q5 sports utility vehicle, from an assembly plant in Aurangabad, Maharashtra, thereby attracting a low duty of 10 per cent. Its other models attract a duty of more than 100 per cent, as they are not locally made.
Schwarzenbauer said the luxury car market’s size in India was small when compared to other markets across the globe. When asked if the company would pull out of the country, he said,"Of course, it can be an option. We cannot rule it out."
If the Budget proposals are accepted, then the duty paid on the three locally assembled vehicles will be brought on par with the ones directly imported into the country. This will nullify the assembly operations, as well as the investments made by the company to modify the Aurangabad plant.
Audi imports the engines and other critical parts as a fully built unit into the country directly from Germany, before mounting these on to a vehicle block at the assembly facility. The Budget states that since the engines, transmissions and gearbox are imported into the country and not assembled here, they should be excluded from the list of CKD definition.
America’s iconic cruiser motorcycle maker, Harley-Davidson, will also be in a fix over the Budget proposal, as the company may have to foot the entire bill levied after the increase in duty on two of its models.
The company has so far clocked bookings in excess of 100 units for the Iron 883 and SuperLow models, which would be locally assembled at a plant in Haryana. Customers who have booked the vehicle and are awaiting delivery could be slapped with the additional duty, which could be more than 45 per cent than its current value if the government accepts the Budget proposals.
The two models carry a price tag of Rs 5.5-6.5 lakh (ex-showroom). Customers are expecting to get the delivery of these two bikes by the end of May or early June, according to an executive at a Harley-Davidson dealer here.
"We dont have any clarity on the matter yet from the company. A few customers are asking us questions relating to this but we do not know what to tell them. For now, we are told that the tax will not be hiked and assuring the buyers about this as well," stated the executive.
Like Audi, Harley-Davidson also plans to import its engines and mount these on the vehicle at the assembly unit. There will be a significant upward revision in the end price of the locally assembled bike if the added duties are imposed.
For instance, the SuperLow, presently priced at Rs 5.5 lakh (ex-showroom Mumbai), carried a price tag of Rs 8 lakh when brought into the country as an imported unit. The company imports all of its other 10 models into the country from the United States and sells these at double the price because of the high import duties.
“We are reviewing the new provision presented by the Finance Minister in the 2011-12 Union Budget regarding Complete Knocked Down (CKD) kit imports. As are others in the industry, we are currently in the process of analyzing the possible effects of the ruling and will only be able to comment once we have a better understanding and further clarity on the matter,” said a Harley-Davidson India spokesperson
The company charges customers the price levied on the delivery date of the vehicle and not on the date of booking, as there could be significant gap between the two. While Harley opened bookings of the two models in January, it will start deliveries after two months.
Further, the company may even have to absorb the entire difference in amount rising out of the added tax, as there is a possibility of a mass-scale cancellation or erosion of brand value. An executive from the Hyderabad dealership of the company stated, "We have been asked by the company to not speak about it to anyone."