Maruti shifts gears as covid hits sales2 min read . Updated: 07 Sep 2020, 05:59 AM IST
- Firm defers ambitious plan to sell 5 mn cars a year in India by 2030
- In the current fiscal year, auto sales are likely to fall 22-25%, according to some analysts
Suzuki Motor Corp. has deferred its ambitious plan to sell at least 5 million cars a year in India by 2030 in a grim admission that the domestic automotive market will see more pain before a full recovery from the coronavirus-induced turmoil.
Suzuki’s largest unit, Maruti Suzuki India Ltd, has already trimmed capital expenditure plans for this fiscal, underscoring a squeeze on household incomes and job losses in an economy that contracted the most in four decades in the June quarter.
“Earlier, it was established that the Indian market may grow to a scale of 10 million units by 2030. We believe these are achievable numbers. The only thing is that it may need a few more years. Compared to now, it is a huge increase," said Toshihiro Suzuki, president and chief operating officer, Suzuki Motor Corp., said at the 60th annual convention of the Automotive Component Manufacturers Association of India (Acma) on Saturday.
Enthused by the potential of the Indian market, Osamu Suzuki, chairman, Suzuki Motor, announced in 2018 that the company expects annual sales in India to grow to 10 million vehicles by 2030, with Suzuki controlling half of the market. This led the automaker to invest in a new plant in Gujarat with a capacity of 750,000 vehicles a year. A second plant with a similar capacity was also planned in Gujarat, to grow Maruti Suzuki’s total capacity in India to 5 million vehicles a year by the end of the decade.
Mint reported in July that Maruti Suzuki has suspended building the second plant in Gujarat, which was earlier slated to open by 2021-22. The carmaker has also cut its capex plan for FY21 to ₹2,700 crore from ₹3,248 crore last year.
Lower sales and profits at Maruti Suzuki are a cause for worry at its Japanese parent as it contributes more than half of Suzuki’s sales and profits.
Analysts attributed Maruti Suzuki’s revision of sales targets to diminishing hopes of an immediate V-shaped recovery in automobile demand in India.
“Regulatory environment became quite volatile in 2017, and the affordability of customers took a hit due to the new norms and economic slowdown. Going forward, sales might remain subdued since car prices have gone up while incomes have remained stagnant," said Puneet Gupta, associate director, IHS Markit. The data and analytics firm has also lowered its annual sales projection for the Indian light vehicle market to 8 million by 2034, given the prevailing economic conditions. In 2018, the London-based firm predicted annual light-vehicle sales to reach around 9 million to 9.5 million by 2030.
To be sure, India’s automotive sector has been facing headwinds for several quarters, and covid has only worsened it. Vehicle manufacturers have been witnessing a double-digit decline in sales from the second half of FY19 due to economic slowdown, higher insurance costs and an increase in vehicle prices due to transition to new safety and emission norms.
R.C. Bhargava, chairman, Maruti Suzuki, said the sales forecast of 10 million by 2030 was made when sales were growing by 8% each year, and Maruti was growing in double-digits. “In the last two fiscals, that has changed and demand for cars will depend on recovery in the economy," he said, adding that “the decline in sales last year itself “put us in doubt about the 10 million figure".