In recent times, the cost of vehicles have increased so rapidly especially in India, despite various challenges faced by automobile industry. Manufacturers are using the opportunity to increase their profits which eventually also increased the cost of ownership of vehicles.
Still, there’s a huge difference between the actual cost of the vehicle and the ex-showroom price of a car. However, the price bifurcation has been explained in more detail in a YouTube video from the channel of CA Sahil Jain, which explains all the math behind the margins incurred by the parties involved and cost you pay for a vehicle.
How the cost is divided?
In the video, the youtuber explains all the amount paid by the buyer of a vehicle is divided into three parties – the manufacturer, the authorized dealer, and the Government (both Central and State included). It is the manufacturer which gets the minimum amount of the total amount, opposite to what most people believe.
He explained the whole calculation by giving an example of Toyota Fortuner with an ex-showroom price of Rs 39.28 lakh for which the customer pays an on-road price of Rs 47.35 lakh, including all the taxes and insurance costs. The company earns only Rs 35,000 – 40,000 per vehicle, on this particular unit.
A dealership like Toyota earns a margin of 2-2.5 percent on each unit of the car sold. In this case of Fortuner, a Toyota dealer would earn up to Rs 1 lakh on sale of each unit, if he’s not cutting out a single rupee from his margin as discounts from its side.
Central government earns more
Majority of the chunks go to governments at both State and Central levels. By taking the example of Fortuner, approximately Rs 13 lakh goes to the government. This includes GST at 28 percent and compensation cess at 22 percent. Both amount accounts for Rs 5.72 lakh and Rs 7.28 lakh respectively. Adding all these costs, the contribution which goes to the government stands around Rs 18 lakh.