Car sales hit VAT bump

Fears over the value-added tax (VAT) have placed automobile dealers nationwide on the defensive mode, leading to lower inventory offtake during February and March. This, according to industry analysts, explains in part the slow growth in automobile sales in February and also possibly in March. According to some dealers in Delhi, the offtake of stock at the dealer level might have fallen by 25-30 per cent.

The lower offtake does not bode well for sales, particularly in a market that was widely expecting tax cuts in the Budget. Sales also lag before Holi, a time considered inauspicious for big purchases.

Analysts said lower stocks at the point of sale were on expected lines. "Though under VAT, credit will be available to stocks bought under before April 1, 2005, there will be a lag of 3-6 months. This causes cash-flow problems for dealers, which may explain the lower offtake," said S Madhavan, head of indirect tax practice, PricewaterhouseCoopers.

Earlier speaking to Business Standard, Bajaj Auto's head of marketing, R L Ravichandran said transition period towards a nationwide implementation of VAT, might have impacted off take of stock at dealer end.

Though the two-wheeler industry was not expecting any duty cuts, which currently attracts 16 per cent excise duty, overall sales in February did not match the growth reported in January.

Though monthly sales data from Society of Indian Automobile Manufacturers' is yet to be made public, announcements from some of the manufacturers did point in this direction.

Two-wheeler market leader Hero Honda recorded only a 9.3 per cent growth in its sales at 2,23,546 units compared with 2,04,555 units sold in the same month of the previous year. Its cumulative sales for the period April 2004 to February 2005 grew by 27 per cent.

Bajaj Auto was an exception to the trend, and recorded a growth of 25 per cent in its total two-wheeler sales in February 2005. TVS Motors' sales dipped marginally from 96,638 units in February, 2004, to 96,020 units in February, 2005. Total motorcycle sales too registered a fall from 59,516 units in February, 2004, to 57,009 units in February, 2005.

Passenger car market leader, Maruti Uydog Ltd reported a modest growth in domestic sales of 1.49 per cent during February 2005. This however was attributed to the expectation of excise duty cuts that never happened finally.