Auto maker Maruti Suzuki India Ltd’s sales volumes for December excited the markets, with the company’s shares rising by nearly 6% on Thursday.
The company reported earlier in the day that volumes were 11% lower compared with a year ago, quite an improvement from the 27% drop reported for November, but this declining trend may not sustain.
According to an analyst with a foreign brokerage, volumes are likely to decline at more or less the same pace as they did in December for at least the next few months.
Although the cut in excise duty announced by the Union government has helped increase secondary sales to some extent, the industry continues to battle many headwinds.
Consumer sentiment is weak and the job market continues to be precarious, reducing the number of prospective car buyers. And, although there has been some respite on the interest rate front, car loans are still expensive.
Also See Rising Volumes (Graphic)
It would, therefore, be premature to assume that the rate at which car sales fall will continue to decline.
In any case, the drop in November was exceptionally high because manufacturers had sought to cut dealer inventory.
So even the 9% month-on-month increase in sales in December isn’t anything to get too excited about.
Also, note that Maruti reports that primary sales volumes to dealers and the trend in secondary market sales are still not clear.
While some reports suggest secondary sales have picked up thanks to the excise cut, analysts say that car sales are still far from buoyant and manufacturers sound cautious about prospects.
Besides, as this column pointed out earlier, the excise cut brings with it the problem of a valuation hit on inventory lying with dealers, and it’s still not clear how high the damage could be. Because of these concerns, it would be premature to celebrate the sales numbers reported for December.
A wait and watch approach would be better.
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