GST rate cut reduces discount pressure on truck manufacturers

The recent rationalization of GST rates has not only brought down the prices of commercial vehicles but also eased the long-standing pressure on Original Equipment Manufacturers (OEMs) to offer steep discounts in India’s fiercely competitive and price-sensitive truck market, Times of India reported.Earlier, medium and heavy commercial vehicles (M&HCVs) priced around ₹50 lakh often got discounts of up to ₹5 lakh (about 10% of the sticker price) as OEMs tried to lure buyers with aggressive pricing. However, with the GST rate on vehicles now reduced from 28% to 18%, manufacturers have found scope to significantly scale back discounts.

Umesh G Revankar, executive vice-chairman of Shriram Finance, told TOI: “Since OEMs cut discounts significantly, the net cost to customers has not really changed much – hardly a big change for customers, especially in the commercial vehicle segment.”

This adjustment essentially absorbed the tax credit into vehicle prices. While the GST cut reduced basic prices, the simultaneous reduction in rebates meant that the overall cost to buyers changed only marginally.

A senior official of a non-banking financial company (NBFC) involved in commercial vehicle financing noted that while M&HCV prices fell after OEMs implemented the GST rate cuts, discount levels fell by at least 5-6 percentage points compared to earlier levels.

A top executive from a leading truck and bus manufacturer added that the company experienced a 3-4% decline in discounts, although he could not confirm whether the trend was uniform across the M&HCV segment. Despite this, some commercial vehicle dealers described the drop in rebates as temporary. “Even though OEMs claim they are not resorting to discounts, it remains a norm in the competitive truck segment,” they say.

With inputs from TOI