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Car sales in February rise 1.39% after excise cut
March, 12th 2014

Automobile sales in India remained sluggish in February despite the booster shot of excise-duty cut offered mid-month by the finance minister. But, two-wheeler sales bucked the trend by posting impressive growth in the past month, boosted by strong rural demand.

Consumer sentiment continues to be weak with the economy set to record sub-5% growth for the second straight year in fiscal 2014. Fuel prices and borrowing cost also remain high, keeping the cost of owning a vehicle high. News of reduced prices following the excise-tax cut if anything has increased enquiry levels, but not translated into meaningful purchases, industry players said.

In the passenger vehicles category - cars, utility vehicles and vans - sales fell 3.86% from a year earlier to 2.17 lakh units in February. That decline was because of a deep 9.09% drop in utility vehicles, as new launches like Maruti Suzuki Celerio and Hyundai Grand helped car sales end 1.39% higher at 1.6 lakh.

Mayank Pareek, chief operating officer of marketing and sales at Maruti, said the excise duty reduction has had very minimal impact on the actual sales. "Enquiry levels have gone up, but conversions are not happening. While the wholesales numbers have shown a negative of 3-4%, on the retail front the market was down over 15%," Pareek said.

In India, vehicle sales numbers are reported based on despatches from factories, and not on actual retail sales. Because of the weak market, several auto makers have large stocks at dealerships, and these are also included in industry sales numbers reported every month.

"Unlike 2008-09, when along with excise-duty reduction on vehicles there was a correction in interest rates and fuel prices, this time around both fuel prices and interest rates have remained high, which does not improve the sentiment," Maruti's chief operating officer of marketing and sales added.

The commercial vehicle segment has taken a bigger hit because of low investment in new industrial and infrastructure projects in the weak economy. Commercial vehicle sales, which have almost halved in the past two years, fell nearly 30% in February to 47,982 units.

In the two-wheeler segment, however, a more than 28% jump in scooter sales drove overall sales 9.69% up at 1.22 million units in February.

Wilfried Aulbur, managing partner of Roland Berger Strategy Consultants, said there was some impact of the government move on passenger car sales. "Commercial vehicle numbers, on the other hand, indicate that the urgent need to fix the basics of India's economic model has not abated. This will be the key task for the incoming government. Decisive action on the part of the new government will lead to an improved situation over the next 12-18 months," Aulbur said.

Meanwhile, cumulative car sales for the April-February period of this fiscal year fell 4.6%, but at a slower pace than overall passenger vehicle sales which dropped 5.9%. Cumulative truck and bus sales were down almost 20% at 5.68 lakh units. The two-wheeler segment was the only shining light in the Indian market, posting a 6% expansion to 13 million units, led by 20% growth in scooters.

While the fiscal year ending this month is likely to see the first decline in passenger vehicle sales in a decade, there are some who are hopeful of a revival.

"Post the reduction in excise duty, enquiry inflow has increased," said Rakesh Srivastava, senior vice president of sales and marketing at Hyundai Motor India. The company posted a 2% increase in February sales and this "would lead towards creation of a positive momentum", Srivastava said.

According to Kotak Institutional Equities, the volume growth is likely to return to the past decade's compounded annual growth rate of 10-12% over fiscal 2015-17.

"As the macro-economic environment stabilises, fuel costs declines (as per our oil and gas analyst forecasts) and interest rates stabilise, we believe the cost of ownership will improve. We are positive about the sector and see early signs of volume growth revival," it said in a note.

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