Cost of vehicles have risen to unprecedented levels globally, especially in India where manufacturers increase prices of their models almost every quarter. This is more true for the passenger vehicle segment where cost of ownership has increased substantially in the past few years.
An average buyer understands the difference between the ex-showroom price of a car and the actual cost of the vehicle incurred while purchasing it. The difference between the two prices is arbitrary and goes higher as ex-showroom prices increase. But one rarely questions how much each manufacturer earns on selling one car.
How much Toyota earns by selling a Fortuner
If broadly categorized, proceeds of a purchase of a vehicle go to three sections- manufacturer, dealer and the government (both State and Central). Surprisingly, out of these three, the manufacturer earns the least on sale of a car. The price bifurcation has been explained in more detail by a video on YouTube channel Taxation with CA Sahil Jain.
The video starts with the example of Toyota Fortuner which is a premium offering with an ex-showroom price of Rs 39.28 lakh for which a buyer has to shell out approximately Rs 47.35 lakh (on-road) from his/her pocket. Considering the high price, one would imagine that Toyota could be earning a big chunk of it which is not true. The company only earns about Rs 35,000-40,000 per vehicle, even as premium as Fortuner.
Dealerships, Government Earn More Than Manufacturer
A dealership, through which the vehicle has been sold to the customer, earns a commission of 2.5-5 percent on each car’s ex-showroom. In Fortuner’s case, a Toyota dealer would earn approximately Rs 1 lakh on sale of each unit. This figure also varies from company to company since each OEM offers different commissions to its dealership.
Majority of the proceeds go to governments at both State and Central levels through various components of taxes. Taking the example mentioned above, out of the ex-showroom price of Fortuner, approximately Rs 13 lakh goes to the government. This includes two GST components- GST at 28 percent and GST compensation cess at 22 percent. Both amount to Rs 5.72 lakh and Rs 7.28 lakh respectively in case of the D-segment SUV.
In the on-road price as well, charges for Registration, road tax, green cess (for diesel vehicles) and fast tag go to the government. Therefore, the total contribution made by a consumer to the government on purchase of a Fortuner stands at around Rs 18 lakh (approx.). All price components mentioned above are rough figures but do give us an idea of the ballpark figure.
Operating Profits Of Major Brands
This should explain why carmakers find it difficult to churn out an operating profit per car since the bulk of the proceeds goes to the government. Among the mass market segment, Kia has the highest operating profit per car at around Rs 70,000. Maruti and Tata have an operating profit of around Rs 40,000-45,000 per car whereas Hyundai earns a profit of around Rs 30,000 per car.
Above numbers are approximated on the basis of respective company’s operating annual report. Apart from car sales, profit figures also include sales of spare parts, etc. Profit figure of Toyota mentioned above is after including all the expenses (salaries, marketing, plant investment, etc), whereas in the case of dealer, it is the approximate commission received per car sold (excluding expenses, salaries, dealership upkeep, etc).
By ARUN PRAKASH. This article was published in ‘RUSH LANE’