Budget Alert - SUV models and CBU imports become expensive

The Union Budget 2013 is out and sadly there is nothing for the automotive industry to cherish.

The SUV's are set to become more expensive, thanks to the hike of excise duty from 27% to 30%. Finance minister Dr. P. Chidambaram stated that, "SUVs occupy greater road and parking space and ought to bear a higher tax. I propose to increase the excise duty on SUVs from 27 per cent to 30 per cent. However, the increase will not apply to SUVs registered as taxis."

The move would affect many automakers who specialize in SUVs like Mahindra, Force Motors, Toyota and the new entrant Isuzu. At the higher end of the range, companies like Jeep, Audi, BMW, Volvo and Land Rover would take a hit.

Apart from the SUV's, the budget has also increased the import duty for the high end Completely Built-up Units (CBU) from 75% to a whopping 100% (75% duty applied previously for imports which have a landing cost of more than $40,000). Among the most affected would be players like Jaguar, Land Rover, Volvo, Bentley, Rolls Royce and supercar makers like Porsche, Lamborghini, Ferrari, etc.

Land Rover emerges as the worst hit victim since their entire portfolio comprises of SUVs and all of them are CBU imports with the exception of the Land Rover Freelander 2. Volvo comes in at a close second as they import all their cars and rely largely on SUVs.

It is unclear as to what is the government's definition of SUV. We are investigating whether MPVs like Maruti Ertiga, Toyota Innova and the Chevrolet Enjoy will also get affected by the duty hike or not. After all they occupy as much real estate as SUV's.

The hike of excise duty for SUV's is sure to affect the overall growth rate of the auto industry because the SUV segment is one of the fastest growing in the country.