Car sales rose a poor 3% in May, the slowest in the last seven months, as high interest rates and costlier petrol prices hit demand at a time when uncertain economic climate and poor corporate earnings have already depressed sentiments. The industry, which is trying hard to shrug off slowdown blues, is worried over an anticipated tax on diesel cars as the government looks at ways to make up for the subsidy that diesel car owners enjoy due to the fuel’s regulated pricing. The diesel tax issue is keeping carmakers on tenterhooks as most of them feel that a hike in diesel car prices will further slow down the demand. Most of the companies have urged the government for not taking such a measure as diesel cars are leading the growth in demand, while that for petrol declines.
However, the finance ministry has said that it is looking to raise excise duty on diesel vehicles to discourage consumption of the subsidized fuel, while bolstering the government’s tax revenues. No decision on the matter has been taken so far. Car company officials have said the coming months are expected to remain tough as buyers are keeping away from showrooms.
Companies have said the growth is coming “at a cost”, especially as petrol inventories are difficult to clear. Industry analysts said discounts and freebies on petrol cars are expected to increase as companies and dealers face pressure to clear older stocks.
Two-wheeler sales, however, continue to grow, led by market leader Hero Moto-Corp. While sales of scooters grew 34% at 2.3 lakh units, the volume-heavy motorcycle segment also grew by 7% at 8.8 lakh units. Sales of commercial vehicles were up 9% in the month, led by light vehicle category.