As the auto industry stares at a ₹2,500 crore cess hit on festive stock, Mahindra & Mahindra’s CEO, Automotive Division and Executive Director of Mahindra Electric Automobile Ltd, Nalinikanth Gollagunta said the issue needs government intervention, after the company rolled out a GST-equivalent scheme and slowed billing towards the end of August to give dealers breathing room.
Speaking on the sidelines of the 65th SIAM Annual Convention in New Delhi, Gollagunta acknowledged the scale of the problem and said it cannot be resolved by any single party. “Honestly you are looking at numbers which are in the thousands of crores. It is not going to be easy for any one party to look at it and say I am going to bear the full responsibility of what that looks like. Having said that both FADA and SIAM have made representations. And we are in close touch with the government authorities,” Gollagunta said.
Mahindra & Mahindra has moved on two fronts to ease pressure on its dealer network. At the end of August, the company deliberately scaled back billings, pausing shipments even as the festive season approached. Its domestic utility vehicle wholesales fell to 39,399 units in August, a 9% decline year-on-year. Including exports, total UV sales were 40,846 units.
The pullback marked a sharp contrast to July’s strong showing, when M&M sold 49,871 SUVs, posting 20% growth. “Without looking at billing targets and all that stuff, we actually took down our billings. And we said that we are going to take a pause on those numbers.That released some amount of pressure,” he said.
On September 6, the company launched a “GST equivalent scheme” that mirrors the benefit of the upcoming tax cut for customers purchasing before the new rates take effect. The scheme, applicable across its ICE SUV portfolio, effectively allows dealers to liquidate stock without waiting until September 22. “If you walk into any of your showrooms today, what we are giving to the customer as a scheme benefit is exactly what they would get if they were to buy the vehicle post 22nd September,” Gollagunta said.
The move has raised questions on whether Mahindra itself will absorb a hit by passing on tax savings early. Gollagunta said the financial impact would only become clear at the end of the quarter but stressed that supporting dealers took priority. “Obviously, this is something we have taken with some careful consideration on what the impact would be. But you will have to balance it out with the stress the dealers were facing at the end of the day… There could be a short-term adjustment we will have to work through. But I would rather go do that than get to a point where the money rotation for the dealers is completely stuck, and they are ready for festiv season,” he said.
He added that while Mahindra had been careful not to over-ship dealerships in August, it had also ensured sufficient festive build-up inventory was already available on the ground. “As part of the festive build-up, we have already sent quite a bit of vehicles to the dealership as well. So the vehicles are available for customers,” he said.
Early signs of demand after the scheme announcement were encouraging, though still nascent. “Retails is very early because it will take time. For a couple of reasons, it has just been a week and it takes time for people to set up their loans and all of that stuff. Even bookings are starting to happen but it is again very early. But definitely from a walk-ins and enquiries perspective, we are seeing a lot of excitement in the market,” Gollagunta said. He declined to quantify the increase, citing the brief time since the scheme’s rollout.
For now, Mahindra’s GST equivalent scheme gives its dealers a breathing space to move inventory and prepare for a demand surge expected once the official tax cuts take effect. But with cess already paid still locked up in festive stock, Gollagunta said resolution ultimately depends on collective action. “It is not a small problem for one single OEM to take care of. It has to be solved collectively. And we are waiting for the government to come back with some clarity,” he said.
The Goods and Services Tax Council’s decision to reduce passenger vehicle tax slabs from September 22, has been welcomed by the auto industry. But for car dealers, the move comes with an unintended financial strain.
Under the current system, passenger vehicles attract a GST of 28% plus a compensation cess that varies by category. Dealers purchase vehicles from manufacturers after paying this tax upfront. When GST rates are cut, new inventory billed after the change benefits from the lower tax, but dealers are left with older stock that has already been taxed at higher rates.
In this case, industry body FADA estimates that the cess already paid on unsold festive inventory could amount to as much as ₹2,500 crore. Unless compensated, that money remains locked in, squeezing dealers’ working capital just as the crucial festive sales season begins.