The finance ministry’s bid to boost consumption with a 4 percentage po-ints cut in excise duty on cars isn’t stoking demand as expected because buyers are staying away as lending rates are still prohibitive, said a top executive of Maruti Suzuki India Ltd, which makes more than half the cars sold in the country.
Last month, finance minister P. Chidambaram had cut excise duty on a variety of vehicles, including small cars, to 12% to boost demand in the auto industry. He also cut income tax rates so there’s more money in people’s wallets that could boost consumption. Car makers reduced the prices of most small car models, but sales are yet to catch up.
Finance minister P. Chidambaram had cut excise duty on a variety of vehicles, including small cars, to boost demand, apart from lowering income tax rates; auto makers had followed it up with price cuts
“Finance is a big driver,” said Mayank Pareek, executive officer of marketing and sales in Maruti. “It’s usually (marketing) schemes that create urgency in the mind of the buyer. Also, the excise cut is less this time.” In 2006, the excise had been cut 8 percentage points.
Pareek refused to give out actual numbers for March sales so far, adding that the duty cut benefits may take up to five months to kick in.
Sales of vehicles typically spike in March as companies can claim depreciation for an entire six months (October-March), and the benefit—in the form of lower tax—is the highest when cars are bought on 31 March. Interest rates have, however, hovered around five-year highs and lenders have avoided borrowers at the lower end of the pyramid amid concerns they will have trouble repaying loans as the cost of living rises and eats into disposable incomes.
Rival Hyundai Motor India Ltd, which sells about one in seven vehicles sold in India, too, said there was no impact of the duty cut so far on sales.
“Sales are looking up compared with February,” said a spokesperson for the Korean car maker. “However, there is no definite evidence of the impact of the excise cut.” He said it was too premature to disclose actual numbers. Hyundai had reported a 5% fall in February sales and Maruti flat sales. Mint has earlier reported that anecdotal evidence suggested no real pick-up in sales.
After getting its vendors and employees (other than marketing and sales staff) to push sales last year, Maruti is looking at other promotions such as targeting village sarpanches, or headmen, to drive sales this season. It has sold 647,403 cars since this fiscal began, up 13.37%. The overall passenger vehicle industry grew 12.32% in the same period, though automobile sales fell, led by falling two-wheeler sales.
“Sales this (fiscal) year were driven by new model launches,” said Pareek.
Maruti Suzuki introduced two new vehicles/variants last year—the SX4 sedan and a diesel engine-powered variant of its Swift hatchback.