Car sales slump: Buyers’ sentiment should get a boost, says Maruti chairman RC Bhargava

With the government having rolled out measures to facilitate an additional `5 lakh crore of bank loans and pushing back the timeline for the one-time registration fee, RC Bhargava believes the auto industry can now look forward to a different environment. Till last Thursday, the chairman of Maruti Suzuki had been reluctant to call an upturn in the festive season but now he believes the environment could change. On Friday, the government lifted the ban on purchase of new vehicles by the government departments and allowed auto buyers enhanced depreciation of 30%.

The auto sector has been hobbled by higher insurance costs, the lack of affordable loans,new emission regulations and rising road taxes, all of which have pushed up the cost of cars and stymied demand. Bhargava had told FE the timing of the increase in road taxes in nine states was bad.

As Bhargava pointed out, the last slowdown in 2013-14 lasted about 18 months but the problems faced by the industry at the time were somewhat different. He was concerned that the slowdown this time could be a prolonged one unless the government took measures to bring down the prices of the vehicles either by way of cutting GST or rolling back road taxes already imposed by nine states.

On Friday, Bhargava said the sentiment would get a boost after the measures recently initiated by finance minister Nirmala Sitharaman.

The Maruti Suzuki chairman wishes the company had been more articulate when it announced it would discontinue sales of diesel vehicles up to an engine capacity of 1.3 litre.

“The general perception seems to have been that all the models,in that capacity, would be discontinued. That is not the case. We should have clarified that the petrol variants would be available. We didn’t clarify that, it was a mistake,” the Maruti chairman said.

In the April-June quarter, Maruti’s sales of diesel cars dropped off by around 11% y-o-y; that meant the share of diesel vehicles fell to 22% from 28% y-o-y. In July, volumes fell nearly 40% y-o-y, with the Brezza reporting a fall of nearly 50% y-o-y. That resulted in a 9% loss of market share in the utility vehicle segment.

Bhargava asserted that the petrol variants of Brezza and Ertiga — the two best-selling diesel models — will be launched. “Customers need not worry about spare parts for their cars. We have also announced a five-year warranty on diesel cars to give them confidence,” Bhargava said.

After the Q4FY19 results, the company had said it would stop sales of diesel vehicles from April 2020, when BS-VI emission norms kick in, as it anticipates demand to fall further given the higher prices of the vehicles. There would be a substantial difference in prices between petrol and diesel models, making it unattractive for buyers. While the smaller diesel engineswill be discontinued, Maruti it is still evaluating options for 1.5 litre and higher capacity engines, saying much would depend upon consumers’preferences post the BS-VI rollout.

Analysts believe Maruti could cede more market share once it withdraws diesel models from its portfolio in April 2020. “We note that its decision to completely vacate diesel for smaller vehicles is a risk particularly to its market share in Brezza and fleet sales,” analysts at Jefferies observed.

Shashank Srivastava, Maruti’s executive director, marketing & sales, said petrol-driven models now comprise 81% of the company’s portfolio.