Maruti Suzuki India Ltd is offering hefty discounts on its vehicles as India’s largest passenger vehicle maker seeks to stimulate retail demand during the crucial festival season.
The local unit of Suzuki Motor Corp. is also urging commercial banks to lower their rates on vehicle loans, in line with recent reductions in the repo rate by the central bank, to make it easier for consumers to purchase new vehicles.
Maruti hopes the steps would help to reduce the overall ownership cost of a new vehicle and avert a slump in retail sales for two consecutive festival seasons. In 2018, vehicle manufacturers endured the worst festive season sales in five years, as customers stayed away from showrooms in the aftermath of the bankruptcy of Infrastructure Leasing & Financial Services Ltd (IL&FS).
Vehicle ownership costs have risen since last year along with higher insurance charges while automakers have increased vehicle prices to meet stricter safety and emission norms. An economic downturn, liquidity squeeze and farm distress is also forcing many to shun new vehicle purchases.
The festival season is critical for automakers as it comprises about a third of total annual vehicle sales. With the automotive industry bearing its worst sales slump, Maruti and other automakers in India are unveiling discounts and other incentives to attract consumers.
Maruti is currently offering discounts ranging from ₹40,000 to ₹100,000 on its vehicles, said Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki. He said the company is focusing on bringing down the cost of ownership irrespective of the steps to be taken by the government to revive consumption demand, as an internal study conducted by the company has shown increase in vehicle prices, due to introduction of new regulations, as one of the biggest reasons behind the current decline in sales.
“The number one reason for this slowdown seems to be the cost of acquisition of vehicles which has gone up substantially for multiple reasons. For example, in the entry segment, price of an Alto (small car) would have increased in the range of around 15-20%. We are trying to reduce the cost of acquisition by our strong promo offers at present," said Srivastava.
Sales of automobiles, especially passenger vehicles, have been declining since July 2018 as banks became cautious in extending credit to customers and non-banking financial companies (NBFCs), in the aftermath of bankruptcy of IL&FS.
“In case of retail financing, we are trying to get banks to finance increased portion of the on-road price of the vehicle so as to reduce the down payment cost that a customer has to bear. We are also talking to banks to reduce the retail finance rate. In July last year, the repo rate was 6.5% and now it’s 5.3%, but this reduction has not reflected in the retail financing rate," Srivastava said.
Most automakers are offering enhanced discounts for the upcoming Navratri and Diwali period to lure customers. With dealerships saddled with inventory of more than a month, companies have also cut factory dispatches by more than 10% in August and September.
Maruti’s wholesales, or factory dispatches, in August fell 36% year-on-year to 94,728 units. This is the third time the company sold less than 100,000 vehicles in a month since July 2017. The number of vehicles produced at its three plants declined 34% year-on-year to 111,370 units in August. It was the seventh straight monthly production cut for Maruti.
“The initial sign (for this festive season) seems to be a bit positive since our enquiry levels are higher and there seems to be some traction in the market. We have to wait for a little bit more time since it’s the end of the month when the festive season will start across the country, after the Shradh period which will get over by 28 September", Srivastava said.