February car sales surge before budget announcement

Car sales in February have been better than expected, especially coming on the back of the depressed sentiment in the market in the last quarter of 2011. Most car-makers have reported better than expected sales, but are cautious before commenting on whether such momentum will be maintained in the coming months.

The top 3 car companies in India by volume – Maruti, Tata Motors and Hyundai, all reported very good sales performance. Newer entrants to the market have also done well, with Nissan crossing the 5000 units a month mark for the first time. For Hyundai, it reported the best-ever sales in India, with 36,805 units sold, the most in any month since it began operations.

However, what remains to be seen is how these figures are sustained in the coming months, especially after the Union Budget is announced. The skewed fuel pricing policy has practically seen the bottom drop out of the small petrol car market, which is hurting auto companies. A plan to increase taxes and excise duty on diesel cars has been mooted, which will lead to anywhere between 15 – 20 % increase in the price of diesel cars. As it is, diesel cars are more expensive, but the huge difference in fuel prices meant that car buyers showed an obvious inclination towards diesel.

Another consideration in the market right now is the introduction of a free-trade agreement between India and the European Union. This would lead to a drop in import duties from the present level of 60 %, to as low as 15 % in some cases, making European cars significantly cheaper. This has caused concern for domestic car-makers like Mahindr and Tata Motors, as also for Japanese and Korean car companies.

Since the government policies aren’t clear as yet, and with a lot of lobbying in the run up to the budget, a certain degree of uncertainty prevails. But in the meanwhile, it’s the moment in the sun as car makers lap up volumes in buoyant market.