Home >Companies >News >Maruti Suzuki steps up output as rural economy sees revival

NEW DELHI : Maruti Suzuki India Ltd plans to increase monthly car production to close to pre-coronavirus levels on hopes that sales of affordable, entry-level hatchbacks will rebound, thanks to a faster revival in demand in semi-urban and rural markets, said three people aware of the company’s plans.

India’s largest carmaker expects to produce more than 100,000 vehicles each month, starting July, sharply higher than the 3,714 vehicles it produced in May when businesses were inching back to normalcy from one of the world’s severest lockdowns.

In May, Maruti first reopened its plants in Haryana and Gujarat, and this month, it is likely to produce 30,000 - 40,000 vehicles there, said one of the people cited above. The Suzuki Motor Corp. unit rolled out 140,000-150,000 vehicles each month before the coronavirus pandemic struck and the subsequent lockdown.

Customer queries and retail sales of Maruti’s entry-level hatchbacks such as Alto, S-Presso, WagonR and Celerio have risen after the easing of the lockdown in May, and the firm is expected to increase the production of these models in the coming months, said the people mentioned above.

“As a policy, we don’t give guidance on production plans," said a spokesperson for Maruti in response to an emailed query sent on Tuesday.

The rising sales of small cars is a reversal in trend in India’s automobile market. In the past five years, the share of such cars in total passenger vehicle sales has fallen since customers in metros and tier-I cities started to prefer compact and mid-sized sport-utility vehicles (SUVs).

Industry experts expect sales of hatchback cars to accelerate in the coming months as the coronavirus-induced economic slowdown will boost sales of comparatively lower-priced vehicles than sedans and SUVs, while a drop in affordability and fears of contracting infection will drive the need for personal mobility.

According to analysts, the local unit of Suzuki Motor Corp. is expected to score a faster recovery from the current crisis, compared to its peers due to strong financials, vast network in semi-urban and rural areas, and a strong portfolio of entry-level cars.

“While the pain of the covid-19 crisis would result in a very weak FY21, we expect Maruti Suzuki to come back stronger and recover faster than peers. With an uncertain outlook, Maruti would be the fastest to recover on account of its strong brand equity and strength in entry and mid-segment passenger vehicles," said Jinesh Gandhi and Vipul Agrawal, analysts at Motilal Oswal Institutional Equities in a 14 May note.

India’s passenger vehicle sales are likely to decline in the range of 22-25% this fiscal, owing to the coronavirus-induced economic slowdown, according to rating agency Crisil.

“In the past 10 years, the growth in rural areas has been more than the urban areas and sales of Maruti’s vehicles in the rural markets has gone up from 7-8% in 2007-08 to 38-39% last fiscal," said Shashank Srivastava, executive director, marketing and sales, Maruti Suzuki India, in a recent interview.

The first person cited above said that a labour shortage at Maruti’s suppliers and a further lockdown announced in four districts of Tamil Nadu can delay the company’s plans to boost production since some of the vendors are based out of the southern state.

“Maruti has asked most of its suppliers to ramp up production according to its plans, but it remains to be seen whether they can match the company’s expectations. Maruti has been receiving decent pickup in entry-level cars and it’s normal for the company to increase production expecting good retails in the coming months," the person said, requesting anonymity.

Maruti has been collaborating with non-banking financial companies (NBFCs) such as Mahindra Finance and Cholamandalam Vehicle Finance Ltd to push rural sales. NBFCs offer credit for car purchases in rural areas, where banks are either not present or too cautious to extend credit.

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