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Business News/ Companies / Fleet vehicles rescue Maruti as its top car models struggle
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Fleet vehicles rescue Maruti as its top car models struggle

Potential customers deferred purchases after govt ended an excise duty concession in Jan, says Maruti

Sales of pricier models such as Swift, Ritz and Celerio, and entry-level sedan Dzire declined by 3.97%. Photo: Pradeep Gaur/MintPremium
Sales of pricier models such as Swift, Ritz and Celerio, and entry-level sedan Dzire declined by 3.97%. Photo: Pradeep Gaur/Mint

New Delhi: Sales of Maruti Suzuki India Ltd’s most popular models, including the Alto, Swift, Wagon R and Swift Dzire, dropped in the quarter ended 31 March, after the government withdrew a tax break in January, discouraging price-sensitive buyers.

Potential customers have deferred their purchase decisions after the government ended the excise duty concession, making cars costlier, a company spokesperson said. “The customers in mini and compact segments are extra sensitive to price increases," the spokesperson said in an email.

However, a surge in sales of vehicles such as the Omni and Eeco vans and the Dzire Tour sedan, which are mostly used for commercial purposes, have helped the nation’s biggest car maker offset the drop in sales of its bestselling models.

If sales of these vehicles are excluded, Maruti’s sales rose a mere 4.3% during the three months ended 31 March, and if the sales of the newly launched Ciaz are also excluded, sales fell 1.6% from a year earlier.

Sales of the Omni and the Eeco rose 14.3% in the January-March period, while sales of the Dzire Tour grew 81%.

On the other hand, sales of Maruti’s mini cars such as the Alto and the Wagon R, which together account for 36.4% of its annual sales, declined 0.08% during the quarter.

Sales of pricier models such as Swift, Ritz and Celerio, and entry-level sedan Dzire declined by a steeper 3.97%.

“In Q1 2014, industry benefited from reduced excise duty, which boosted sales. But this year, the government’s move to increase duties have impacted us. Basically, this was a major differentiating factor between the two quarters," the spokesperson said in a phone interview.

In an email, he said sales in the mini segment were at the same levels, despite the impact of the higher excise duty, which increased car price for the customer by at least 10,000.

There are reasons apart from the increase in price for the decline in sales of Maruti’s top-selling models, according to Deepesh Rathore, co-founder and director, Emerging Market Automotive Advisors.

“Alto and Wagon R are under pressure due to a slow recovery in the economic growth. This segment recovers slowest," Rathore said.

He added that the Swift and the Dzire have reached their peak levels and a dent has been made by Hyundai Motor India Ltd’s next-generation i20, which competes in the same price segment.

The Maruti spokesperson said that sales of Dzire suffered as the company introduced a refreshed model in January and it wanted to clear the previous stock.

“Sales in the compact segment were lower because of the changeover to the new Dzire during the quarter. For any such changeover, production and sales despatches are adjusted to create space for the new version. Owing to this reason, Dzire wholesales are about 10% lower in Q4 of 2014-15," he added.

The company spokesperson added that there has been a renewed focus on institutional sales, which include fleet sales, cargo and taxi operators.

However, Rathore said Maruti has been helped by Tata Motors Ltd shifting its focus away from fleet sales in order to spruce up its brand image.

“Thanks to Mayank Pareek (president of the passenger car business unit at Tata Motors), Tata is not focused on commercial use market. This has given a fillip to Dzire Tour sales, which I expect to reach 5,000 units per month in the current year," Rathore said.

In his previous job, Pareek was chief operating officer (marketing and sales) at Maruti Suzuki.

In February, sales of cars grew for the fourth month in a row to 171,727 units, rising 6.85% from a year earlier.

However, the industry remains worried about weakening rural demand, which has affected sales of motorcycles in the country, which declined for a fifth month in a row. Weak rural demand may also delay the recovery in the car segment.

The recent spate of unseasonal rainfall has damaged standing crops in 14 states and may lead to a 4-5% loss in the wheat harvest, agriculture minister Radha Mohan Singh said on Tuesday.

Rain at the end of February and March damaged crops in 11 million ha spread over Rajasthan, Uttar Pradesh, Haryana, Madhya Pradesh, Maharashtra and Punjab, according to a 26 March agriculture ministry estimate. An estimated 6 million ha of wheat crop, nearly a fifth of the sown area, has been damaged. There have been more showers since the data was released.

However, the government has said the economy is likely to grow at 7.4% in the current fiscal year, based on a debatable new method, estimated to be on par with China’s growth. It is also the first time that the economy is projected to be bigger than $2 trillion; India’s gross domestic product is estimated to be $2.1 trillion in 2014-15.

The new government has initiated a set of reforms to revive growth. Since the National Democratic Alliance came to power in May, it has allowed 100% foreign direct investment (FDI) in railway infrastructure, increased the cap on FDI in the defence and insurance sectors to 49% from 26%, and eased FDI rules in the construction sector.

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Published: 07 Apr 2015, 11:58 PM IST
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