Maruti Suzuki SX4 Now An SUV?

The automobile industry had a lot of hopes for a revival from the Union Budget 2013. Among the many recommendations from the Society of Indian Automobile Manufacturers (SIAM) was a reduction in excise duty. However, the government, while keeping the excise duty structure unchanged for all other segments, ended up raising it for SUVs from 27% to 30%.

Considering the fact that passenger vehicle sales were solely supported by the robust growth in Utility Vehicles (UV), this move came in as a roadblock to revival for the industry. With this, the prospects of the industry dropped another step lower, just as it had when the government had taken a step towards deregulating diesel prices, which resulted in the then support system of passenger cars to stoop lower. However, Finance Minister P Chidambaram justified the move saying, “Tax increase on SUVs is small, and buyers get huge benefit in terms of subsidised diesel.”

In accordance with the budget proposal, the SUVs category would include vehicles with an engine capacity exceeding 1500 cc, length in excess of 4000 mm and ground clearance above 170 mm. This means a direct increase in car prices in an environment that is highly competitive because of the entry of new players, new models and sales promotion methods taken up by manufacturers.

Among listed passenger vehicle manufacturers, Maruti Suzuki, Tata Motors and Mahindra & Mahindra (M&M), the move seem to most likely affect M&M considering its product portfolio. UVs contribute to 95% of M&M’s passenger vehicle volumes and more than 50% of the total volumes. Its UV portfolio has been the sole reason for M&M’s performance in terms of volumes and financials.

Tata Motors also has a range of cars that falls in this category including Xenon, Aria, Sumo, Safari and Land Rover. These cars (apart from Land Rover) contribute to about 30% of Tata Motor’s passenger vehicle sales.

A point to note here is that even cars that would not be otherwise called SUVs or categorised under UVs come under the points drawn by the government to define these cars. This includes Maruti Suzuki’s SX4, which has an engine displacement of 1586 cc, overall length of 4490 mm and ground clearance of 170 mm.

This gets more interesting – the newly launched successful Utility Vehicle Ertiga doesn’t count as an SUV. The vehicle has a length of 4265 mm and a ground clearance of 185 mm but its engine capacity stands at 1373 cc for the petrol version and 1248 cc for diesel. That way, solely from a price perspective, the Ertiga gets an advantage over other UVs.

Post this duty increase, the prices of these vehicles would rise by Rs 30000-60000 per vehicle. How much of a difference this will make in the demand for UVs and the market dynamics in the UV space will be interesting to watch. Till then, while Tata Motors and M&M seem to be burdened by the move, Maruti Suzuki stands at a clear relative advantage.