India Duties Force Foreign Automakers To Increase Prices

Emmanuel P May 9, 2011

With New Delhi’s impending increase in customs duties for locally-assembled luxury cars, customers in the Indian sub-continent will soon have to pay significantly more to drive home the luxury cars that the increasingly affluent middle class covets. Customs taxes on foreign cars are being increased to 30% from the previous 10%. Admits Peter Honegg, CEO of Mercedes-Benz India, “We are looking at increasing prices for one of our major models in the next few weeks. We would be paying high tax on one of our cars with a high proportion of pre-assembled components. The new policy regulation has forced us to bring in new prices soon.”

Aside from Mercedes, Audi, BMW and Land Rover are also being forced to increase prices to keep reasonable margins. The tax increases will specially affect premium car sales in India, where luxury car sales doubled to in FY 2010-11, driven by attractive financing packages and rising incomes. This doubling in sales did not go unnoticed by the government, hence the resulting duties increases.

This customs duty increase is forcing foreign automakers to amend their production strategies and it remains to be seen what remedial measures foreign makers will employ to make their products competitive price-wise.

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