Excise cut fails to rev car sales

The excise cut in this year's budget has failed to give much of a boost to the sales of small cars.

While sales of these cars grew 11.9 per cent in March-April this year, compared with about 8 per cent for all passenger cars in 2005-06, the rise in the growth rate pales in comparison to the impact of the last excise cut.

After the 2004 budget reduced the excise on all cars from 32 per cent to 24, their sales jumped 17 per cent in 2004-05 and for the first time the Indian car market clocked a million in annual sales.

Interestingly, the sales of the cars that did not benefit from the excise cut, Maruti's Baleno, Esteem and Swift, Honda's City, Tata's Indigo, Ford's Fiesta and Ikon, Hyundai's Accent and Getz, General Motors' Aveo, and Mitsubishi's Lancer, grew a whopping 64 per cent.

This year's budget, presented on February 28, had reduced the excise from 24 per cent to 16 on cars less than 3.8 meters in length. In addition, the engine displacement had to be no more than 1200 cc for petrol cars and 1500 cc for diesel cars. The excise on the bigger cars remained unchanged at 24 per cent.

Industry watchers say the reduction in the prices of small cars after the excise cut has been nullified by the rise in interest rates to the current 13 per cent from 10.5 per cent three months ago. As 80 per cent of the cars sold in the country are financed by lending companies, the rising equated monthly installments do pinch.

Secondly, the key states of Maharashtra, Gujarat and Rajasthan have raised the road tax by 1 to 3 percentage points.

Three of these, Maruti's Swift, Ford Fiesta and General Motors Aveo, sold a combined 20,773 units in the two months after the budget. None of these was around in the corresponding months last year, although GM had its Corsa range and Ford's Ikon was still hot.

This study takes into account only the volume segments and ignores the luxury cars as well as models whose productions have been affected due to uncertain times faced by the manufacturers or a phase-out.

The second category includes Fiat's Palio and Petra and GM's Corsa models.

It considers all Indicas as one lot since the break-up between diesel and petrol was not available and petrol Indicas account for only a small portion of the model's total sales.