Demonetisation & Maruti Suzuki

The Chairman of Maruti Suzuki says that the automaker hasn’t been severely impacted by demonetisation.

At a round table conversation with journalists in the Capital today, Mr. R.C. Bhargava, Chairman, Maruti Suzuki, said that the effects of demonetisation on the automaker have been relatively mild.

Maruti Suzuki did see bookings drop by 20% in November, but bookings are up by 7% so far in December. Keep in mind, however, that the festival of Diwali was in the month of November in 2015, while Diwali this year was the month before – in October. So, if you look at the combined sales of October and November year-on-year, Maruti still saw sales that were 6% higher than the year before.

Maruti True Value – the automaker’s second-hand car sales division – witnessed a bigger drop. But even these are now picking up. The reason for this is the fact that 80% of new car sales are financed, whereas only 40% of True Value sales are financed – because of higher interest rates on used vehicles.

Rural sales, which make up 30% of Maruti’s total volumes, saw a drop of 11% in November, but bounced back even quicker – growing by 18% so far this month.

Specifically, the two models most severely impacted by demonetisation have been the Maruti Omni and Eeco – both vehicles that are largely used for commercial purposes. The success of the Vitara Brezza however – 85,000 units of which have been sold since its launch in March this year – has bolstered overall sales and protected Maruti Suzuki from the effects of both demonetisation and the NCR diesel ban (since its has a 1.3-litre diesel motor, which didn’t fall under the ban). In fact, as a result of strong demand for both the Vitara Brezza – which was recently crowned the 2017 Indian Car of the Year (ICOTY) – and the Baleno, Maruti has been facing severe capacity constraints. As a result of which customers are faced with long waiting periods. The situation should improve somewhat starting February 2017, once the brand new Gujarat plant comes on-stream.

Mr. Bhargava also said he feels that aggregators such as Uber and Ola will be good for the auto industry, as they will lead to a larger number of people having access to four-wheeled transport. His belief is that whatever’s good for customers is good for the industry. Moreover, the vehicles used by these companies will have much higher replacement cycles than those used for personal use. In fact, Maruti even has a contract to train up to 70,000 drivers for Uber and Ola. And, of course, both are preferred customers for Maruti Suzuki – especially since the Dzire is the industry favourite for fleet sales.

Going into 2017, the launches will come quick and fast for Maruti Suzuki. The Ignis will be launched in the first few weeks of the year itself, which will be closely followed by the Baleno RS. The Swift hasn’t been officially announced, but we expect it to be launched before Diwali next year.

Mr. Bhargava ended by saying that he fully expects Maruti to achieve its stated goal of double-digit growth for the fiscal year – unless the government initiates any more unexpected fiscal measures between now and the last quarter of this financial year.

All said and done, if Maruti does manage to achieve double-digit growth, it augurs will for the industry growth as a whole – since Maruti makes up almost 50% of the Indian car market!