The Hindu Business Line : VAT slows down auto sales

AUTO sales had lost momentum during the first six months of 2005. Not only have two months in the period - February and June - seen a dip in domestic sales vis-à-vis the same period last year, the overall production during the period surpassed the total number of cars sold (including exports).

While production in the January-June period was approximately 505,951 units, total number of passenger cars sold were 503,811 units. In comparison, in the January-June 2004 period while the total production was about 449,652 units, total sales were higher at 467,972 units.

The percentage growth in production level too was higher than overall sales in the period. While total production of passenger cars grew by 12.5 per cent in the first six months of the year over the corresponding period last year, the increase in sales was only about 7.6 per cent in the period.

"Post February, there was an effort by car makers to push stocks to dealerships as customers had preponed purchases anticipating an increase in car prices in April with the implementation of the value-added tax (VAT) regime.

"Further, in order to counter the perceived slowdown, auto makers have been pushing stocks into the market since the beginning of the quarter resulting in high inventory levels," points out an analyst.

The reasons for the slowdown are varied, with market officials claiming that VAT has played a dampener for sales in the period. "The bulk of the car buyers are businessmen and traders, VAT has direct implication on the businesses of these key buying audience and hence, impacting the purchase of cars. This should be viewed as a temporary slow down till the actual stabilised income by the businessmen and traders are calculated," Mr Anang D. Jena, Research Director, Synovate Motoresearch.

Further, while first it was the delayed monsoons that impacted offtake, sales were later hit by excessive rains playing havoc on delivery schedules of some automakers.

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