Relief for used car players as GST rate slashed for second-hand vehicles

Organised dealers, which received a breather from the GST Council that lowered the goods and services tax rate on used cars, said margins would now improve and the market would see more discounts. 

In its 25th meeting on January 18, the GST Council lowered tax rates on 29 products and 54 services. Among these, the GST rate on used medium and large cars and SUVs was cut from 28 per cent to 18 per cent, and the rate on small cars and motor vehicles was reduced from 28 per cent to 12 per cent. The cess on both these categories of used cars was removed. Before the implementation of the GST, dealers had to pay a value-added tax (VAT) of 5 per cent.

“These announcements are expected to be favourable for the used car market, which saw some disruptions after the GST was imposed. Earlier, the GST framework had levied tax rates between 28 per cent and 43 per cent on dealer margins, depending upon the type of vehicle,” India Infoline said.

This is expected to be positive for Maruti Suzuki, which derives a fourth of its sales volume from the used car market. The abolition of the cess on ambulances was positive for Force Motors, the largest player in that segment, India Infoline added. 

Shubh Bansal, co-founder and marketing head, Truebil, which clocks a gross merchandise value (GMV) of Rs 60 million per month, said the pressure on margins would now ease. “Our margins were in the range of 10 per cent, and after the GST implementation, these were squeezed by 3-3.5 per cent,” he added.

He expects discounts and offers from organised players will back soon. Many players were holding back on big offers as margins were under pressure. “The benefits will be directly passed on to customers and we predict an immediate boost in sales. Truebil’s volumes will rise three times in this quarter,” Bansal added.

Industry sources point out that instead of raising selling prices of used cars, many dealers had chosen to lower their purchase prices to offset the GST. 

The country’s largest organised used car seller with a 72 per cent market share, OLX India, welcomed the decision, saying the move would boost consumer sentiment and enhance the ease of doing business in the pre-owned automobile industry. 

“As prices drop, there will be a higher number of pre-owned automobiles in the online marketplace to fulfil the rising demand of end users. It is a win-win situation for buyers, sellers and dealers,” said Sunny Kataria, director, automobile category, OLX India. 

The used car market in India is estimated to be around 3.5 million vehicles per annum. Of these, 40 per cent are sold  through organised channels. 

Unorganised used car dealers were not affected much by the GST because  many with low turnover were exempt. These players are now likely to face the heat as organised players step up discounting.

Used car market
  • The market size of used cars in India is estimated to be 3.5 million units
  • Organised players, who constitute 40%  of the used-car market, say their margins took a 3-3.5% hit after the GST roll-out
  • GST Council on Thursday announced a rate cut on used cars from 28% to 18% for large cars and SUVs, and to 12% for small cars
  • Before the GST, dealers had to pay a value-added tax of 5 per cent