Car sales slow in August as buyers await lower GST

DELHI/MUMBAI: The GST cut that makes cars cheaper and is expected to be a fillip for the auto industry in the second half of the year has caused a lull in sales in August as customers wait for the discounts to show up. Auto retail sales rose by just 3% in Aug to 19.6 lakh units, according to the Federation of Automobile Dealers Associations. Passenger-vehicle sales inched up by less than 1%.

The month had begun briskly, with festive-season enquiries and bookings. But momentum stalled once govt unveiled its ‘GST 2.0’ reforms, which trim tax rates on several categories of cars by nearly 10 percentage points. Consumers, convinced that prices will fall, are deferring purchases until the new invoices come into force on Sept 22.


Two-wheelers, usually more resilient, recorded only a 2% increase in sales. Floods in the North and patchy supplies of popular scooters curbed demand, though festival deliveries offered some lift. Commercial vehicles, helped by infrastructure projects, did better, growing by 9%. Three-wheeler sales slipped. The GST 2.0 reforms were announced by the PM on Aug 15.

Twist In Finance
Non-bank lenders say the tax cut will shrink average ticket sizes and drag down loan growth for the year. The value of outstanding auto loans reached Rs 8.2 lakh crore in March, up 15.6% year on year. The increase was driven largely by a shift in consumer preference toward larger vehicles and SUVs, which pushed loan values higher even as the number of active loans grew at a slower pace of 9% to 1.59 crore.

But if prices fall by about 10%, the volume of loans disbursed will moderate even if sales volumes eventually recover. As one financier put it: “The market value of vehicles has come down sharply, which means demand for loans will also come down.”