Auto sales slow as buyers await possible GST rate cut
What's the story
The auto industry is witnessing a slowdown in sales momentum, with customers delaying their purchases. This trend is largely due to the anticipation of a possible Goods and Services Tax (GST) rate cut on automobiles. Nuvama Institutional Equities' latest dealer channel checks show that while customer inquiries remain strong, new bookings have sharply declined over the past week as buyers adopt a wait-and-watch approach.
Market impact
Dealers report sharp decline in new bookings
The anticipation of a GST cut is impacting booking activity across different vehicle segments, including two-wheelers (2W), passenger vehicles (PVs), and tractors. Dealers have observed that while customers are inquiring about models, they are hesitant to finalize purchases. The general belief is that a reduction in GST rates could lead to price cuts, prompting buyers to delay their decisions until more information is available.
Dealer concerns
FADA highlights potential impact on rural sentiment
The Federation of Automobile Dealers Associations (FADA) has also raised concerns over GST-related uncertainty disrupting near-term demand. In rural markets, where tractor and entry-level two-wheeler demand is usually sentiment-driven, awareness about potential GST changes is still low. However, dealers say news of a possible tax cut is spreading fast and could further dampen rural sales momentum in the coming weeks.
Inventory impact
Dealers concerned about existing inventories during GST transition
Dealerships are also worried about how existing inventories will be treated once the GST cut is announced. Many expect that the new rates will apply not just to fresh dispatches but also to unsold stock already with dealers. Such a move, if confirmed, would let dealers pass on lower prices immediately without hitting margins, helping revive sentiment and boost volumes.
Segment stability
M&HCV segment remains largely unaffected
Interestingly, the medium and heavy commercial vehicle (M&HCV) segment remains largely unaffected by the likely GST changes. Dealers say this is because GST is usually a pass-through cost for fleet operators who can claim input tax credits. As a result, purchase decisions in this category continue to be driven more by freight demand and financing availability rather than taxation expectations.
Policy impact
Awaiting GST Council's nod for Diwali rollout
The future of the auto industry now hinges on GST rationalization. A Group of Ministers (GoM) has agreed to the Centre's proposal to abolish the existing 12% and 28% GST slabs, replacing them with just 5% and 18% brackets, plus a separate 40% slab for luxury and sin goods. The proposal is awaiting approval from the GST Council ahead of Diwali.