Car sales skid in Dec, head for rough patch

Sales growth likely to be around 6% as against 24% in Dec '04.

The passenger vehicle segment is likely to end this financial year with single-digit growth, against a robust 17 per cent in 2004-05, as sales have stagnated this month and the forecast for the next two is none-too-bright.

Analysts attribute the dismal December to the cold wave in the northern region and unrelenting rain in the southern part of the country. Going by indications, growth this month is likely to be less than 6 per cent, a sharp climbdown to 81,000 units compared with a whopping 23.96 per cent growth rate last December.

This comes immediately after lukewarm festival season sales in October and November. Growth in October was only 8.1 per cent while November registered a decline of 3.58 per cent.

Car companies were hoping that postponed purchases would materialise in December due to deep discounts. January and February have traditionally been months when potential buyers postpone purchases anticipating a reduction in taxes in the Budget.

This year, the expectation is especially strong because of Finance Minister P Chidamabram's announcement in September that the government would consider tax cuts on small cars.

Small cars constitute 75-80 per cent of the market.

A spike in sales was needed in December to make this a good year, since the first eight months of this financial year have registered growth of just 6 per cent to 7.22 lakh units. That is a far cry from the good opening of April (12.4 per cent), May (13.8 per cent) and August (13.9 per cent).

However, the other months have shown either single-digit growth or a decline.

"There has been a huge decline in footfalls at the dealers' end, resulting in inventory pile-ups," said S Ramnath, vice-president-research at Mumbai-based brokerage SSKI Securities.

CEOs of car companies, however, remain upbeat, saying that there is still time to make it a reasonably good year. Some of them say discounts are likely to continue even into the new year, and that might help revive sales.