In recent times, we have seen that the demand for new cars has increased despite various challenges faced by the automotive industry as a whole. Citing the ever-increasing demand for popular cars, manufacturers are using the opportunity to increase their profits, which eventually has also increased the cost of ownership of vehicles.
Still, there is a vast difference between the actual price of the vehicle and the cost taken by the carmaker from the customer in the form of ex-showroom price. Here’s a YouTube video from the channel of CA Sahil Jain, which explains all the math behind the margins incurred by the parties involved and the cost you pay for a vehicle.
Also read: Used Toyota Fortuner SUVs starting from compact SUV prices
How the cost is divided?
In the video, the presenter explains that the costs paid by the customer of a vehicle are divided into three different parties – the manufacturer, the authorized dealer and the Government (both Central and State included). Contrary to what most people believe, it is the manufacturer which gets the least amount of the total cost.
He explained the whole math by taking a Toyota Fortuner as an example, the ex-showroom price of which is Rs 39.28 lakh. For this particular version, the customer ends up paying an on-road price of Rs 47.35 lakh, including all the taxes and insurance costs. On this particular unit, the carmaker, Toyota in this case, ends up earning Rs 35,000-40,000.
A dealer outlet of a mass-market carmaker like Toyota earns a margin of 2-2.5 per cent of each unit of the car sold. In the case of this Fortuner, a dealer outlet can earn up to Rs 1 lakh of margin, if he is not cutting out a single rupee from his margin in the form of discounts from its side.
Central government earns the most
The chunk of the amount goes into the treasures of Central and State Governments. In the video, the presenter explains how the governments earn around a whopping Rs 18 lakh on every Fortuner sold. This amount includes two GST components – GST at 28 per cent and GST compensation cess at 22 per cent, which account for Rs 5.72 lakh and Rs 7.28 lakh respectively in the case of the Fortuner discussed here. Other charges incurred by the government include registration, road tax, green cess and fast tag. Accounting for all these costs, the contribution which goes to the government stands at around Rs 18 lakh.
The last two years have been very dramatic for the automotive industry. While many speculated that the COVID-19 crisis might hurt the industry due to global slowdown, the reverse happened, with the demand for both new and used cars witnessing a surge. However, the industry has a set of challenges to deal with, including a shortage of parts due to disruption in the supply chain and growing input costs, which have forced them to gradually increase the prices of their vehicles.
Also read: Low maintenance Toyota Fortuner & Land Cruiser Prado luxury SUVs starting from 10 lakh