The Hindu Business Line : Big bonanza for the small car

On fast track
Small cars account for three out of four cars sold in the country
The Swift and the Indica petrol version will not qualify for the benefit
Input prices likely to soften on lower import duties on metals and plastics
Co mponent manufacturers could benefit from higher offtake

FAST OFF the block.

Sales of small cars, which already account for three out of every four cars sold in the country, may have just got a major boost in the form of a lower excise duty in the Budget. Maruti Udyog, Hyundai Motor and Tata Motors should be happy as small cars account for a dominant share in their overall sales of passenger cars.

The Maruti 800, the Alto, the Zen, the Wagon R, the Omni, the Santro and the Indica are set to be cheaper by Rs 13,000 to Rs 23,000. The two "small" cars that will not qualify for the benefit are the Swift, because of its 1.3-litre engine and the Indica petrol because of its 1.4-litre engine, though both fulfil the criteria on size. The benefit is limited to cars with 1.2-litre engines in the case of petrol and 1.5-litre engines in the case of diesel.

Of the three manufacturers, Maruti Udyog stands to benefit the most as 90 per cent of its total car sales is made up of the 800, the Alto, the Zen and the Wagon R. Hyundai is next with the Santro accounting for four out of every five cars sold by it. Two of every three cars sold by Tata Motors is the Indica.

Though the petrol version of the Indica will not qualify for the lower duty, Tata Motors may not be affected because the Indica diesel outsells the petrol version by a long margin.

If anything, it will make the diesel version more competitive vis-à-vis the petrol engine Indica.

Car manufacturers, including those not making a small car, have other reasons to celebrate, too. Input prices are likely to soften following the drop in import duties on steel, aluminium, copper, zinc and plastics such as, PVC and polypropylene that are used in cars.

The fall in prices now following the duty reduction is likely to widen the sales chasm between small cars and mid-size sedans as the price differential between the two segments increases.

Small cars already account for three-fourths of the total car sales in the country and the reduction in excise duty now may add more fuel to this trend.

Given the congested traffic conditions in the big cities as also the narrow roads, a higher proportion of small car sales may not be a bad thing after all.

Component manufacturers could indirectly benefit from higher offtake, if sales of small cars get a leg up following the drop in their prices.

Given that suppliers to these models already enjoy significant economies of scale, an increase in volumes could prove profitable to them.

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