Maruti Suzuki blames increase in ownership cost for declining car sales

This view comes in the backdrop of Finance Minister Nirmala Sitharaman’s comment that a change in the ownership pattern of cars from owned vehicles to cab aggregators such as Ola and Uber is the reason why car sales are falling
The country’s largest carmaker Maruti Suzuki has blamed increase in ownership cost as the biggest reason for the slowdown in car sales. Along with that, a tight liquidity situation because of the stringent lending norms of banks and confusion over BS-VI vehicles have made life tougher for automakers.

This view comes in the backdrop of Finance Minister Nirmala Sitharaman’s comment that a change in the ownership pattern of cars from owned vehicles to cab aggregators such as Ola and Uber is the reason why car sales are falling. The auto industry is clamouring for a cut in goods and services tax (GST) for reviving demand.

“While we witnessed a growth of almost 26 per cent in the first four months last year, by the end of the year it had fallen to around 3 per cent. By April, there was no scope of sending any new vehicle to the dealers as the pipeline of inventory was already choked. I think the primary reason for this is the increase in ownership cost of a car,” said Shashank Srivastava, executive director, marketing and sales, Maruti.

Srivastava added that the hike in road tax, along with increased cost of manufacturing, to adhere to the BSVI norms, resulted in increase in on-road prices by an average 14-15 per cent. 

“In some states, where road tax increase was higher, the on-road price has gone up by more than 20 per cent. This has primarily impacted the entry-level segment which is very price conscious. A 1 per cent hike in price also impacts sales,” he said.

As the ownership cost went up, lending by banks also became stringent as after the IL&FS crisis, banks became wary about disbursal.

Speedbreaker
  • Liquidity crunch, confusion over BS-VI vehicles were the key pain points
  • Automaker says hike in road tax, higher manufacturing cost resulted in 14-15% increase in on-road prices
  • Maruti not to undetake fire sale to clear BS-IV stock 
  • Domestic vehicle sales fell 23.55% year-on-year to 1,821,490 units in August 2019
“We are talking to banks to treat customers with good payment record differently and not ask for a high collateral. We have succeeded in some cases,” Srivastava said.

According to the Society of Indian Automobile Manufacturers (SIAM), domestic vehicle sales in August declined by 23.55 per cent to 18,21,490 units from 23,82,436 units in the same month last year. From April to August period, sales have fallen by 15.89 per cent to 97,32,040 units from 1,15,70,401 units in the year-ago period, SIAM had said. Maruti is trying to tide over the crisis by offering heavy discounts on its vehicles in popular models like Baleno, Ciaz and Swift.

For its Nexa models, Maruti has offered a gallery of offers. Except for the recently-launched XL6, there are a variety of schemes in the form of exchange offers, corporate offers and free extended warranty.

“The biggest factor to buy a car is positive sentiment. Since the sentiment is negative, we are trying to create a positive sentiment and stimulate the market through offers and discounts. I think this is the best time to buy a car,” Srivastava said.

He said Maruti will roll out the offers very soon and not undertake a fire sale to clear BSIV stock close to the BSVI norms implementation.

“We have already launched seven of our most popular models, which are BSVI-compliant. So, we are already in the process of clearing the BSIV stock. We may not have a stock to do a fire sale close to the implementation date of April 2020 (for BSVI),” Srivastava said.