Cut in GST will bring back demand: Toyota Kirloskar

The automobile industry, which was hit by a slowdown in sales last year, continues to suffer as Covid-19-induced lockdown severely dented sales during the first five months of this fiscal. Shekar Viswanathan, Vice Chairman, Toyota Kirloskar Motor Pvt Ltd explains to Mahesh Kulkarni of DH that the demand can be revived if the government brings down GST on vehicles, especially passenger cars. Edited excerpts:  

Last year, automobile sales slowed down as BS-VI rollout was happening. This year, the pandemic has impacted sales. When do you expect the recovery in demand?

The transition from BS-IV to BS-VI is a one-off event. It is wrong to say that people slowed down their purchases because BS-VI was coming. Lot of people bought BS-IV vehicles ahead of the launch of BS-VI cars. In the current year, the pandemic has affected different industries differently. The automobile industry is very closely indexed to the hospitality industry and to the general state of the economy.

Unless tourism and hospitality sectors are encouraged, only then will people use cars to travel here and there. If because of the virus people don’t want to travel, anything you do is not going to have any effect.

To some extent, the automobile industry is dependent on the real estate and other sectors of the economy. The demand for the automobile industry will return with the recovery in these sectors.

What needs to be done to revive the demand immediately?

The level of Goods and Services Tax (GST) imposed on automobiles is at a punitive high rate of 28% even for the smallest car and goes up to 50% for bigger cars. This is the industry which gives secondary and tertiary employment. I think, unless the government brings down the GST rate, we are not going to find demand whether there is pandemic or not. If the GST rate is brought down, more people will buy cars and there will be demand for better road infrastructure and it will have a cascading effect.

What is the level of GST you recommend?

I think 12%-18% would be a good starting point. We had 28% even in the pre-GST time and that has been copied. In few cases, like hybrid vehicles, the tax rate is increased from 28% to 43%.

I don’t know what the government wants to really achieve by doing that. On the one hand electric vehicles are levied 5% and hybrid self-charging vehicles are charged 43%. There are a lot of anomalies in the way the rates are fixed. However, the high rate of tax is impacting the consumer and not the industry as such. On the sale of every car, the manufacturer gets only 5-7%. Whereas the govt gets 28% for doing nothing. In addition, the state governments get road tax, registration tax, etc. Overall, there is an element of unfairness here for the consumer.

What are the challenges before the automobile industry?

There are some short-term challenges like getting the workforce back to work. To make people come to the showrooms is another. The footprint at dealerships is abysmally low.

Last year, Toyota Kirloskar witnessed a sharp drop in sales. What is the outlook this year?

The demand is coming back. But it has not crossed the level for Toyota. It is true for most of the auto sector. For Toyota, the normal break-even is around 7,000-8,000 vehicles per month.

This year, we have not still reached that number per month. The normal demand is about 11,000-12,000 vehicles. We need to reach at least 7,000-8,000 vehicles depending on the product mix to achieve cash break-even. That is not happening. We are still struck at 5,000-6000 vehicles.

That is a matter of concern for us. We are confident that we will cross that, whether we go back to 12,000 is an issue. We will achieve 8,000 units by September for sure. We don’t have an answer for the 12,000 units. We are in the deep sea, first let us come out of the water and then think of landing. We won’t be making losses at 12,000 units per month.

If the GST rate is reduced, then we can see better demand. It will also help in increasing overall sales and that will enable the government to achieve its revenue targets. As I mentioned, sales are below the cash break-even point of about 8,000 vehicles a month. We will achieve this and climb further in the second half of the year. 

What are your expectations for the upcoming festival season?

It all depends on the spread of the virus. It will also be indexed how the virus is going to spread by Dasara and Diwali festivals. My anticipation is that before Dasara and Diwali it should be under control.

The second half of this year would be better than the first half in terms of sales. We can expect much better sales in the third quarter.