A Maruti Suzuki India Ltd. Ignis urban compact vehicle is displayed at the company’s pavilion during the Auto Expo in Noida, Uttar Pradesh, India. (Photographer: Anindito Mukherjee/Bloomberg)

Don’t Think Dealers Have Large Pile Up Of Inventory, Says Maruti’s Bhargava

The dealers of the country’s largest carmaker aren't facing distress due to unsold inventory as production adjustments are underway, according to RC Bhargava.

“We have been adjusting our production to ensure that inventory both at factory and dealer levels remain within the norms prescribed,” the chairman of Maruti Suzuki India Ltd. said in an interview with BloombergQuint. “At a maximum, we keep only one month’s inventory. One month’s inventory norm is over 1.5 lakh cars. I don’t think that inventory is higher. It's still lower than that.”

The company sold 1.58 lakh units last month—a 1.6 percent drop from March 2018, according to its exchange filing, and the steepest decline in seven months. The carmaker had cut production by over 8 percent in February due to subdued demand.

However, Bhargava said the company is witnessing the usual trend of declining sales in pre-election years—as seen in 2009 and 2014—adding that there were no major economic factors responsible for the slowdown.

Immediately after elections (in 2009 and 2014), the sales went up sharply. For some reason people stop buying cars before elections. I don’t think anything very major in the economy has happened to justify the slowdown.
RC Bhargava, Chairman, Maruti Suzuki

Watch the full interview here:

Here’s the edited transcript:

Can you give us the current stock of the situation? Especially, the numbers of Maruti Suzuki witnessing some pressure in past few months ever since the start of festive season. We have seen the sales fall in March by 2 percent. What is leading to a slowdown for auto companies?

We have seen very good sales in the first half of the previous financial year. And then there has been slowdown. But if we look at what happened in the two previous election years which is in 2008-09 and 2013-14. In both these years, there was a substantial slowing down of car sales. We have apparently followed the same pattern. Immediately after the year ended and elections were held, the sales went up sharply.

In 2009-10, it went up to about 20 percent. In 2014-15, it went up to 12 percent or so. We have just followed that pattern. For some reason in the months before elections, people stopped buying cars. I don’t think anything major has happened in the economy to justify this slowdown. I am not aware of what has changed from first half to second half which caused such a sharp slow down.

Why the sales go up after the elections? Why they went up in 2009 and 2014? I don’t know that also. All I do know that the number says that it happened. We are waiting to see whether the sales pattern will repeat this year after the elections.

A lot of dealership and promotional activities are happening. When you talk to Automotive Dealer Association, they were talking about how the inventory has piled up, be it passenger car or two-wheeler segment. At this point, how is Maruti Suzuki supporting its dealers?

I don’t think Maruti dealers have large inventories which are causing them distress. That is why we have been adjusting our production to ensure that inventory, both in factory and at dealer levels, remains within the norms prescribed. At maximum we keep only 1 month’s inventory. One month’s inventory is over 1.5 lakh cars. I don’t think that inventory is higher. It is still lower than that.

Can we assume that Maruti Suzuki would have adjusted their production by 15-20 percent on the lower side since there was a lot of slowdown post the festive season?

No. Maruti’s growth this year is still about 5.5-6 percent. If you look at growth in the last six months, it has been much lower. The growth of 5.5-6 percent, to large extent, is because of growth in the first half. Because in the festival season, retail sales where lower than what normally happens. People tend to build inventories at that time because they expect larger sales. More inventories are kept by the dealers. When retail sales don’t come up to expectations, then there will be stock lag at dealerships. That is where the production adjustments have been made to see that dealers’ stock comes down. We have to see what happens next.

How soon we can see production for BS-VI happen and how soon you think you will be able to phase out older version of non-compliant vehicles?

As far as BS-VI is concerned, the law now is no BS-IV vehicle can be registered after April 1, 2020. We have a large number of models. The only way we can ensure that we comply with the law is to start introducing BS-VI versions of some models in every quarter. Otherwise, it is not possible to do it. In the first quarter of this financial year, which is in April-June, there will be BS-VI cars from Maruti which will be launched in the market.

The car which will be launched will only be petrol cars because BS-VI petrol cars can operate safely on BS-IV petrol. BS-VI diesel cars cannot operate safely on BS-IV diesel. So we will not launch diesel cars at all till BS-VI diesel is available.

In an environment where demand is slow and you have to comply with safety and emission norms, do you think this will be probable disruption period for auto companies and in next two-three quarters we could see some steep price hikes coming?

Some of the car companies have already made price hikes. And they are trying to do it in a manner so that overall price hike, coming from BS-VI and other safety regulations which are introduced in a phased manner, are all taken care of. Safety regulations started coming in from 2017. Then we had safety regulations related to passenger safety, pedestrian safety, for new and old models.

For example, from today, ABS will be compulsory in every car. From July 1, we will have airbags compulsory in all the cars. So, it is not only BS-VI, but these factors will come in. Question is what does the customer decide? Does he wait? He has to get ABS as there is no choice. Does he wait for cars with airbags and pay the higher price? Or does he buy the cars in first quarter before airbags become compulsory? As far as Maruti is concerned, all these regulations will be met in phasing different models and ensuring that we are well ahead of the deadline prescribed by the norms.