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Corporate Jul 12, 2013

Indian automakers want their own ‘cash for clunkers’. Will govt oblige?

By Sindhu Bhattacharya

New Delhi: Just as the United States launched a successful though controversial cash for clunkers scheme in 2009 to phase out older vehicles and help vehicle makers sell more, the Indian automobile industry has asked the Government for its own version. Indian vehicle makers want the Government to ban any vehicle which is more than 15 year old and incentivize purchase of new vehicles. This, they feel, should be done in addition to an across-the-board lowering of excise duty so that vehicle sales improve.

The cash for clunkers in US not only provided specific and significant incentives to people turning in their old vehicles, it also mandated dealers taking back old fuel guzzlers to destroy these.

But the Indian Government is unlikely to pay heed - it has in fact made matters worse already by suspending purchase of vehicles which various Government departments do round the year, in the garb of implementing an austerity drive. If it has not even allowed purchase of a few thousand cars for official use, is it wise to expect the Government - which is already under fire for mishandling the economic situation - to offer a vehicle replacement scheme? The industry is also looking at reduction in excise duty - which was raised to previous levels only in March this year. From the look of things, the automobile may have made justifiable demands but these are quite unlikely to be met.



President of the Society of Indian Automobile Manufacturers S Sandilya said today the fiscal deficit is unlikely to have any significant impact if the Government were to lower excise duty for vehicles across each category. Sandilya's worries are not unfounded. Not a single vehicle category has lived up to the annual sales forecast which SIAM had made at the beginning of this fiscal in April. Though numbers for one quarter (April-June) may not represent gloom for the entire year, sales of every vehicle category have fallen.

According to SIAM data for the first quarter of this fiscal, sales of passenger vehicles were down 7% against a 9% growth in the same quarter last year. In June alone, passenger vehicle sales fell by 5%. Sales of two wheelers were down a percent against 11% growth seen in the first quarter last fiscal. June decline alone was 5%. Three wheeler sales fell 2% against a 1% growth in the same quarter last year; Commercial Vehicle sales fell 8% against 6% growth in the corresponding quarter last year.

Even exports have been suffering. They fell by 4%, 26% and 13%, respectively for passenger vehicles, commercial vehicles and two wheelers in the June quarter.
Sandilya pointed out that in the case of passenger vehicles the market sentiment continues to be poor and vehicle finance rates have not come off their previous highs. So cars are still being financed at 14.3% and CVs at 17.5% by private banks. Though commodity prices have remained stable, increased cost of ownership (because of steady increase in fuel prices) and continued high finance costs have wrecked havoc.

For June alone, car sales fell 9% at 139,632 cars (153,450 cars) in the domestic market last month, according to SIAM data. This means demand dropped for the eighth straight month. Sales of motorcycles fell 9.2 percent in June to 799,139 vehicles (879,721 vehicles) while truck and bus sales were down 13.5 percent at 56,197 vehicles (64,928 vehicles).

by Sindhu Bhattacharya

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