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Car sales to stay on fast track

New Delhi, April 26: Domestic sales of cars and utility vehicles will surge this year as consumers will be lured by lower prices, new models and infrastructural growth, analysts and auto makers say.

They said an increase in car prices, due to rising steel prices and inflation, would fail to soften growth as the ‘affordability’ factor induced by the over 5 per cent cut in prices would continue.

But, the biggest growth driver would be the differential-rate-of-growth between two factors — rising income coupled with lower price — which means, for demand to take off, it needs a faster-growing economy and a higher wage environment, analysts said.

“The elasticity of demand is huge,” Arindam Bhattacharya, analyst for the Boston Consulting Group, said. “Any drop in prices would see a huge jump in sales.” Bhattacharya, however, would not hazard a guesstimate growth rate “this early”. Though other analysts expect growth to be in the region of 8-10 per cent against 6 per cent growth last fiscal.

Car and utility vehicle sales picked up speed last month as there was a drop in prices, ranging between Rs 10,884-37,664 in the small and mid-car segment, following the cut in excise tax.

The reduction in prices was on the back of finance minister Jaswant Singh’s excise duty or production tax cut on cars, utility vehicles and tyres to 24 per cent from 32 per cent as part of an overall tax reform plan.

Auto sales which include passenger cars and utility vehicles are closely monitored by economists since they are the first consumer spending numbers released each month.

“April will be a good month for us and we are looking at a yearly 6-8 per cent growth which is quite healthy,” said Vinay Dixit, vice-president, marketing & sales, General Motors India, the local subsidiary of the world’s largest auto company. “The size of the market is good, especially in the volume segment.”

The country’s 15 vehicle makers sold a combined 7.08 lakh units in the year to March 2003, in a country with a population of over a billion people.

Among the auto makers, Tata Engineering rose 24 per cent to 79,525 units; Honda’s rose 21 per cent to 13,296 units, Hyundai rose 17 per cent to 1,03,536 units and Maruti inched up to 2,75,031 units.

Bhattacharya said supply of new models, specially in the Rs 7-9 lakh range, will also boost growth.

“The introduction of new models is an effective way of increasing sales as the newness of a model drive sales and helps the firm to gain market share,” Bhattacharya said. “Also, competitive pressures demands new models,” explained Dixit.

Recently, General Motors has launched Forester, a sports utility vehicle with a sticker price of Rs 18 lakh, while Maruti has introduced Grand Vitara, also an SUV, and costing Rs 15 lakh.

“Though this is a premium segment, there is demand, as the disposable income here is high,” Dixit said. “We should sell around 300 units.”

But Bhattacharya said: “More than the sales volumes these models drive the brand.”

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