Budget 2011: Car sales surge in Feb on excise hike fears

Fear of excise hike in Budget and the economic growth kept car sales healthy in February despite a slew of negatives like rising interest rates and petrol price hike. Demand is expected to be headed for moderation in the coming months from its high levels earlier, fear industry players

Maruti, the country's top carmaker, led the charge as it reported a 20% growth in domestic volumes at 1.01 lakh units against 84,765 units in the same month last year. The company, that last month launched a diesel version of its SX4 sedan, said sales of its bread-and-butter small car portfolio was up 19% at 72,090 units.

Company officials, however,fear that the bumper demand may not hold up for long with interest rates on the rise and negative sentiments building up due to high inflation and petrol price hikes.

Hyundai had another month of subdued performance as its domestic volumes grew 5% at 32,629 units against 31,001 units in February last year. The company's sales were up by a small 2% in January. "Rising competition from upcoming companies like Ford and Volkswagen is expected to take some market share from dominant players like Maruti and Hyundai," analysts say.

But while being cautionary on the sales prospects in the coming months, most of the companies heaved a sigh of relief as the finance minister kept the excise duty unchanged at 10% in the Budget. Companies had said that they would not be able to hold on to prices in case the excise duty would go up in the Budget.

"It is a good thing that the FM decided to go in for consistency in policy. With the excise duty rates being retained , we will not be hiking prices, as of now," Mayank Pareek, managing executive officer (sales and marketing) of Maruti Suzuki, said.

Other companies like Hyundai, Honda, General Motors and Mahindra have also said that they would hold on to prices for now. However, companies say they may be forced to up prices in the coming months as rising cost of inputs was hurting margins. Both Maruti and Hero Honda saw a 20% drop in profits in the last quarter and say that prices would need to be moved up at some time to adjust to higher costs.

Experts warn that the industry may be headed for some course correction as negatives firm up. The higher cost of inputs may translate into higher vehicle prices in the coming time while expensive car financing will hit EMIs. And with fuel bills going up, at a time of high inflation, things could get a bit difficult for the industry.

"We may not see the 30% growth that was experienced last year," Pawan Goenka, head of Siam and president of Mahindra's automotive division said. New models are expected to keep the volumes charged up. Companies like Toyota , Honda, Ford and General Motors are lining up new models to get a bigger share of the domestic market.