Car price hike may push sales downward

New Delhi, Dec 29 | Updated: Dec 30 2006, 05:30am hrs
The proposed move by almost all car manufacturers to increase prices in January may lead to lukewarm sales during the fourth quarter. The reason being that the manufacturers are lobbying hard for and have the support of the heavy industry ministry for a cut in the excise duty rate applicable on motor vehicles from the present levels. If their demand is accepted by the finance minister in Budget 2007, companies would have to pass on the benefits by way of reduced prices. Consumers may, therefore, postpone purchase decisions till after the Budget.

According to an auto analyst, price uncertainty due to Budget plays a major role in the car market. Because of this, people avoid purchasing cars in the last quarter of the financial year. During this period the purchasing power of the buyers also goes down due to tax savings leading to weaker sales of cars. Car sales generally registers slump in the last quarter of the fiscal as compared to other quarters, he added.

At present, apart from small cars, which attract an excise duty of 16%, other makes have a duty of 24%. The heavy industry ministry has proposed that the duty on small cars be reduced further to 12% while on others be brought down to 16%.

In November, almost all the automakers announced increasing prices in the very first month of the new year citing rising cost of the inputs such as steel, aluminium and rubber among others.

Car market leader Maruti Udyog Ltd had said it would increase car prices by up to Rs 12,000 from January across all its models. The company has already sent letters to all its dealers in this regard. Rival Hyundai Motor India followed suit and announced that it would increase prices by upto Rs 15,000 across all the models, including the flagship Santro and the premium compact model Getz from January.

The company would revise the price of its newly-launched product Verna also. Among other carmakers those who have said they would increase price from January include General Motor India, Skoda India, and Toyota Kirloskar motor Ltd. Tata Motors and Mahindra and Mahindra have, however, remained silent on increasing the price till now.