Despite various challenges faced by the automotive industry, we have seen the demand for new cars increase in recent times. Manufacturers are using this opportunity to increase their profits, which has led to an increase in the cost of owning a vehicle. However, there is a significant difference between the actual price of a vehicle and the ex-showroom price taken by the carmaker from the customer. In a YouTube video from the channel of CA Sahil Jain, the math behind the margins incurred by the parties involved and the cost paid by the customer for a vehicle is explained.
The video 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 popular belief, the manufacturer receives the least amount of the total cost. The presenter uses the example of a Toyota Fortuner, whose ex-showroom price is Rs 39.28 lakh. The customer ends up paying an on-road price of Rs 47.35 lakh, including all taxes and insurance costs. Toyota, in this case, earns only Rs 35,000-40,000.
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A dealership of a mass-market carmaker like Toyota earns a margin of 2-2.5% of each unit of the car sold. In the case of the Fortuner, a dealer outlet can earn up to Rs 1 lakh of margin if it does not offer any discounts. The majority of the amount goes to the Central and State Governments. In the video, the presenter explains that governments earn around Rs 18 lakh on every Fortuner sold. This amount includes two GST components – GST at 28% and GST compensation cess at 22%, accounting for Rs 5.72 lakh and Rs 7.28 lakh, respectively, in the case of the Fortuner discussed. Other charges incurred by the government include registration, road tax, green cess, and fast tag. Accounting for all these costs, the contribution going to the government stands at around Rs 18 lakh.
The automotive industry has faced several challenges over the last couple of years. While many speculated that the COVID-19 crisis would hurt the industry due to a global slowdown, the opposite happened, with demand for both new and used cars went up. However, the industry has had to deal with a shortage of parts due to supply chain disruptions and growing input costs, forcing them to gradually increase vehicle prices.
In conclusion, owning a car can be expensive due to the cost incurred by different parties involved. Customers pay more than the actual price of a vehicle, with a significant portion going to the government. While the automotive industry has witnessed a surge in demand, it still faces several challenges that could lead to a further increase in vehicle prices. The video specifically talks about Toyota Fortuner in this case. The amount mentioned here is specific for this particular manufacturer and the amount might be different for other manufacturers. The video was released over 10 months ago and the prices for Toyota Fortuner have gone up after this video too. Price for 32.59 lakh, ex-showroom and goes up to Rs 50.34 lakh, ex-showroom.
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