Excise duty cuts help car sales in 2014

Automobile companies predict a bleak year in 2015

Passenger vehicle (cars, utility vehicles and vans) sales, which fell seven per cent in 2013 (calendar year) owing to economic downturn, rose one per cent in 2014 to nearly 2.6 million units. The recovery is on the back of upbeat consumer demand from 11 months of lower excise duties. The growth was largely led by new model launches such as Celerio, i20, and City from Maruti Suzuki, Hyundai and Honda, respectively, which account for 67 per cent of the market.

While lower fuel prices on the back of global cues helped reduce vehicle ownership costs, market sentiment improved after a stable government assumed power at the Centre.

Sugato Sen, senior director at the Society of Indian Automobile Manufacturers, said, “While excise duty was cut in February 2014, the impact was only seen from May onwards. Everything is so fluid now with the GST (goods and services tax) expected to come in, it is tough to make forecasts for 2015.”

The automotive industry was expecting the excise cuts to continue, Sen added. According to him, the market is yet to revive, lower fuel prices have not been passed on to the consumer, and interest rates are yet to drop.

In 2014, lower petrol prices helped passenger car sales rise 2.5 per cent to 1.8 million units, with top-selling models such as Maruti Alto, WagonR and Hyundai i10 performing well. Utility vehicle sales also rose two per cent, to 546,000 units.

In December 2014, passenger vehicle and commercial vehicle volumes recorded a 12.4 per cent and nine per cent growth to 209,000 units and to 51,000 units, respectively. One of the major reasons for the uptick is the fact that the excise duty concession was to end in December, which prompted buyers to advance purchases to avoid higher prices in the new year.

This is a marked change because traditionally, December sees lowest retail sales and highest discounts from manufacturers. Two-wheeler sales in December, too, were up 4.25 per cent to 1.2 million units.

Rakesh Srivastava, senior vice-president (marketing and sales) at Hyundai Motor India, said the last three years were challenging the situation would continue in 2015. As the cost of ownership goes up, coupled with prevailing high interest rates, demand will be affected.

"In the last 11 months, for four months PV sales fell. The small growth seen is not inclusive, and limited to only a few companies and new models," Srivastava added.

Agreeing with this view, Gaurav Vangaal, senior analyst for light vehicle forecasting at IHS Automotive, said: "After Narendra Modi's spectacular win in the general elections, a revival in market sentiments was expected. However, with excise duties being rolled back, 2015 may prove a challenging year."

Medium and heavy commercial vehicle (M&HCV) volumes also recovered in the second half of 2014, after falling 40 per cent in two consecutive years. This helped the M&HCV segment to record a 0.16 per cent growth in 2014 to 215,000 units, helping major players such as Tata Motors and Ashok Leyland increase production across factories that had seen layoffs, and block closures for the past 18 months.

However, light commercial vehicle sales fell by 17 per cent to 390,000 units, dragging down the overall commercial vehicle volumes by 12 per cent to 606,000 units for the year. Two-wheelers, however, recorded a steady growth of 11.5 per cent in 2014 to 16 million units, led by a strong 29 per cent jump in scooter demand to 4.3 million units from small towns and cities. Rural demand also helped motorcycle sales rise six per cent to about 11 million units.