Tax cuts spurred Indian auto sales last month but Global Insight auto analyst Ian Fletcher said it remains to be seen whether the tax cuts will be enough to offset the high interest rates that have curbed sales in recent times because of the associated increased cost of financing.
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However, he added in a research note, potential customers could also be awaiting the launch of the Tata Nano in the final quarter of 2008 before making a purchase, but demand for this model looks set to outstrip supply as the automaker slowly ramps up production.
Indian passenger car sales rose by 12.2% year-on-year in March to 128,074 units, helped by a round of tax cuts, according to data released by the local industry body, SIAM.
Sales at Maruti Suzuki were flat when compared to last March, however, at 64,421 units, but it remained the largest-selling automaker in the country by a significant margin, while second-placed Hyundai Motors recorded one of the largest increases in the month as its sales leapt 52.3% year on year to 29,401 units. Tata Motors was third with 18,177 units, its sales having slipped by 7.5%.
Sales of trucks and buses also jumped during the month, by 14.2% to 56,262 units.
The first two months of 2008 both saw single-digit percentage growth in the passenger car segment, capped with a sluggish 2.3% increase in February.
March saw a far greater improvement – the main reason likely to have been the duty cuts announced by finance minister Palaniappan Chidambaram in his 2008 budget at the end of February.
Under the new measures passenger cars shorter than four metres and with a petrol engine of 1,200cc or a diesel engine of 1,500 cc have had their tax rate reduced from 16% to 12%, while in an effort to promote environmental technologies and greater fuel efficiency, hybrid vehicles have benefited from a reduction in tax from the top rate of 24% to 14%.
Commercial vehicles have also been granted some relief, with the duty on trucks having been cut from 16% to 14%, while there was an even larger four-percentage-point reduction for buses to 12%.
By contrast, motorcycle sales remain in the doldrums even though such vehicles have been granted similar tax relief to that afforded to passenger cars.
Motorcycle sales fell from 633,591 units in March 2007 to 630,976 units in the same month this year.
The reason for this, Fletcher said, is the continuing high interest rates in the country, which are having an effect on vehicle financing; this same factor could be preventing more significant growth in the passenger car and commercial vehicle markets.
“There is unlikely to be any respite from this any time soon either given that inflation has recently breached 7.0%, fuelled by surging food prices, although no more interest-rate hikes are envisaged,” Fletcher wrote.
“It remains to be seen whether the pent-up demand that has come about since the interest rate hikes will be relieved over the coming months as the tax cuts come fully into play, or whether the March jump was a one-off.
“Some potential customers in both the light-vehicle and motorcycle segments may be delaying a purchase until the ultra-low-cost Tata Nano is launched in September, but this is not expected to provide the market with any significant growth initially as the facility in Singur gradually builds up towards peak capacity.
“Initial reports suggest that only 15,000 Nano models will hit the road between then and the end of December, with another 35,000 units to be built in the first quarter of 2009.
“However, there is no denying that this vehicle will eventually have a large impact on the market and the vehicle-buying demographics in India.”
