Mahindra could be stalling expansion plans if the government increases tax on diesel vehicles

Mahindra & Mahindra, which is the largest SUV manufacturer in India, has said that it is going to stall its expansion plans. This is because the car maker is anticipating a drop in its sales provided the government takes the decision of increasing taxes on vehicles powered by diesel. As per Mr. Pawan Gupta, President – Automotive & Farm Equipment division, Mahindra, has said that the company is going to suffer adversely if the government decides to go ahead with the imposition of this tax. The car maker is not sure at present whether they are going to curb this expansion plan for the next three months or whether it is going to be a permanent move. Whatever be the case, it is pretty certain that Mahindra is definitely going to bring down its targets for the next year if this additional tax gets imposed.

Mahindra could be stalling expansion plans if the government increases tax on diesel vehiclesDiesel vehicles significantly dominate the sales of Mahindra as they account for close to 99% of the total sales of the company. Hence, it is going to be one of the worst sufferers in the automobile sector provided this diesel tax gets implemented as the company produces huge number of diesel powered vehicles. A senior staff member of the automaker has said that the move of the government is going to make Mahindra bring down the targets that it is going to set for itself in the upcoming financial year. The first 10 months of the financial year 2011-12 has been quite impressive for Mahindra as the company has increased its sales by 35%. It has been able to sell 197,000 vehicles till January 2012. However, the company is expecting that consumers may not be inclined towards buying diesel vehicles once this new tax is implemented and hence decided to go ahead with this step. The company had initially made investment plans based on the growth momentum in the current financial year but is now revising its numbers following this latest development. However, it is going to take a final decision on this matter once the union budget has been announced.

Mahindra & Mahindra had initially made plans of investing Rs.5000 crore capital for the parent company along with a further Rs.2000 crore in its associated groups including Mahindra Vehicle Manufacturer as well as Mahindra Navi-Star Automotive. This expansion plan was to take place at the car maker’s Chakan plant because the alternate manufacturing locations of Mahindra had already become oversaturated. However, the plans have been shelved as of now. Economists have stated that the Central Government is planning to impose an added excise duty of Rs.80,000 on diesel powered vehicles for curbing misuse of the fuel. The other automobile manufacturers that are expected to suffer due to this move of the government include Maruti Suzuki as well as Tata Motors. However, the impact is going to be felt the most by Mahindra as it is on top of the list in the SUV category. The company is dreading that the new tax is also going to strong affect the demand for its vehicles.

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