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    A good monsoon, upcoming festive season to spur vehicle sales, says Shashank Srivastava of Maruti Suzuki India

    A good monsoon, upcoming festive season to spur vehicle sales, says Shashank Srivastava of Maruti Suzuki India

    A good monsoon, upcoming festive season to spur vehicle sales, says Shashank Srivastava of Maruti Suzuki India
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    By CNBC-TV18  IST (Updated)


    A good monsoon and the upcoming festive season are expected to spur vehicle sales in the coming months, says Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki India Limited (MSIL).

    A good monsoon and the upcoming festive season are expected to spur vehicle sales in the coming months, says Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki India Limited (MSIL).
    Talking to CNBC-TV18, Srivastava said the company’s research revealed that 55 percent of people would like to wait for BS-VI (Bharat Stage VI) and only 15 percent would like to buy BS-IV and 30 percent remained undecided.
    MSIL has already rolled out BS-VI variants for Alto, Baleno, WagonR, Dzire and the Swift. Srivastava confirmed that they would like to make a complete transition from BS-IV to BS-VI production by end of Q3 or by the beginning of Q4.
    Edited excerpts from the interview:
    The domestic sales for the April-June quarter for MSIL have been down 20 percent. How are you preparing for the festive season?
    There has been some stress in the system and in the first quarter, our retails are down 17 percent which is similar to the industry. So the dealer inventory does go up because we initially started the year with the projection, which was higher than what we have achieved. So obviously the dealer stock has gone up and there is a little bit of stress in the system.
    But going forward, I am very hopeful that with the elections now over, some uncertainty gone regarding policy, regarding the government side, I think there will be some positive sentiment building up either through a good monsoon and we will have the festive season coming in. This starts with Kerala, where the Onam is the festival season, which happens to be in August and then the Ganesh Chaturthi and the related festivals in the west and subsequently it spreads to the entire country somewhere towards the end of September.
    Are measures being taken to promote sales during this period?
    Yes, of course, as you would be aware when the sales are a little slow, manufacturers including Maruti Suzuki do give a lot of support in terms of very extensive consumer promo schemes because the stock levels are on the higher side. Rather than focusing on pushing vehicles into the dealer stock, it is how quickly you can liquidate the stock and that is what we are trying to do. So our focus is entirely on retails.
    As far as the stress in the system is concerned, inventory cost is one of the top three costs at the dealership.
    What would be the average inventory level across the country right now because whenever we hear dealers speaking, they are always complaining about very high inventory levels especially for the last four, five months?
    I would say it is more than the last four, five months because if you see the retail growth in the last 12 months, 11 of those months have been negative. So the inventory has been building up over a period of time but typically because of the good market conditions in the last four, five years. Dealers were working with an inventory of about 15-20 days but now it has risen a bit more and because of the slower retail, it is roughly about 34-35 days. I believe a lot of the other manufacturers and dealers also have extremely high level of inventory but it is definitely above the average and in the last four, five years our average inventory has been between 15 and 20 days.
    So the average inventory would be around 30-34 days.
    If we talk about production cuts, Maruti Suzuki India Ltd has seen production cuts for five months in a row. Is this going to continue?
    There is no point in pushing metal to the dealers. Especially, when retail doesn’t happen. The key is retails and should the retails happen, that is what we are trying to do. There is no reason why we should not be able to have vehicles dispatched to the dealers, which means production but yes, if you see the trend in the last few months, the retails have been slower. We are very conscious of the fact that dealer profitability has to be maintained at all costs. Our entire business model is actually based on the dealer profitability. We have a business model which not just depends on new car sales but also sale of accessories. So our business model is built on revenue sources, not just new car sales. Sales service also is included.
    So you are looking at different avenues to increase profitability for dealerships across the country?
    The other question – dealerships say that yes, finance is still available, access to finance is there but it has become more difficult to get now. How are you supporting your dealerships when it comes to financing?
    Yes, it is true that both on the retail side where 80 percent of the sales in automobile industry is through financing and also on the inventory side, where also more than 80 percent sales, the dealers inventory is actually financed by banks. So you are right, the banks have become a little more cautious because of this news in the industry that it is under stress.
    What we have been trying to do is to talk to a lot of banks including State Bank of India, HDFC Bank and others. Very recently, we had an agreement with Bank of Baroda where they agreed to bring in a lot of money for inventory financing. So that is one way we are supporting. The other way is of course we are in regular touch with banks to tell them that the industry is still very robust as far as Maruti business is concerned. In fact, the non-performing assets for Maruti is less than 1 percent whereas in the industry it is about 2 percent but if you take the banking sector as a whole, maybe it is about 9-10 percent. So, it is still a very good bet and Maruti definitely is one of the best bets in the industry and that is what we are trying to convey to banks and to a large extent we have succeeded also.
    One of the reasons the banks would be reluctant to lend is there has been a slowdown in the industry. Federation of Automobile Dealers Associations (Fada) has been saying that approximately 286 dealership across the countries have shut down in the last two years. To what extent has Maruti been affected? How many of Maruti’s own dealerships have been shut down?
    This information of Fada relates to outlets rather than dealer group, so of 286 outlets maybe some of them have been transferred to other outlets. But as far as our compiled data is concerned we have seen about 177 dealerships in the industry closing down in the last two years. Out of which Maruti has, I think only about four of them. So the worst affected are some of other competitors wherein about 30 dealers have been shut. Fortunately for Maruti, we have had a very little effect and again I must say is largely because of our business model which ensures that dealer revenues are dependent just not on sales but on many other allied activities.
    Can we say going forward there will be more production cuts to keep inventory at the optimum level? Bigger focus would be on retail and no further expansion in terms of dealerships or outlets keeping in mind the muted demand?
    I don’t think so because as I said we keep a track of the retails. Should the retails be good there is no reason why we should have cuts going forward. But yes, it is true that we have a very close watch on the retail. If retails however don’t pick up then yes there is no point in producing vehicles and keeping them in the stock either at the factory or at the dealers.
    Talking about the transition from BS-IV to BS-VI, this is something that the industry is grappling with. All original equipment manufacturer (OEMs) are making plans. About Maruti Suzuki, you have already rolled out five variants of BS-VI. How has the response been?
    Actually it has been a learning experience for us to be very frank. We were thinking that since there is a big price hike relating to BS-VI models, especially going forward in diesel as well there is going to be a huge jump in terms of the prices. Even for petrol vehicles the price hike is quite substantial. We were expecting that a lot of customers would rush for the BS-IV vehicles, but actually what has happened is people still prefer BS-VI vehicles at this time even though it is more expensive. Some of the research data which is there in the industry shows that 55 percent people will prefer to buy BS-VI. In the case of diesel, it is only 15 percent which will say no I want to grab the BS-IV vehicles and 30 percent were like undecided which way to go and they would wait for higher consumer offers on BS-IV vehicles. So the learning here is that we were expecting that 15 percent of that segment which will rush to buy BS-IV would be much larger. So it has been a learning experience to see that actually that percentage is only 15.
    Going forward by when you would like to make complete transition to BS-VI considering that you will not be able to sell BS-IV from April 1, 2020.
    I cannot give specific dates for Maruti Suzuki’s individual products but most of the manufacturers are expecting that they should transit to BS-VI production by the end of Q3 or the beginning of Q4. The reason is that with the current stock levels, people would require some safety margin by which they have to clear the stocks because after April 1, 2020 there would be no registration of BS-IV vehicles. So that is our expectation in the industry.
    Five of our top selling models -- Alto, Baleno, WagonR, Swift and Dzire are already BS-VI. So that is something which gives us good feeling for our dealers also because there won’t be that rush for clearing BS-IV vehicles towards the end of the year.
    Talking about electric vehicles, the government’s push also seems to be in that direction, how confident is Maruti Suzuki about the demand for electric vehicles and your own launch?
    We have already announced earlier in the media that we will launch an electric vehicle in 2020 which is next year. Currently we have 50 such vehicles which are being tested across the country in different terrains – dessert, mountains, cold climate, hot climate, etc. So we will have that launch in 2020.
    As regards the demand for electric vehicles, we are not so sure and the reason is that it all depends on the battery costs which are very high in electric vehicle. My expectation on a personal level is that given the high prices, the demand may not be so high.
    So it will probably be a phased rollout, a phased launch, like a pilot project initially?
    I suppose so. As we go along we will collect more data, we will see how the market behaves, and then decide accordingly.
    My final question to you would be about the state of the industry going forward. Society of Indian Automobile Manufacturers has already said that if there is further de-growth, then that could impact further employment and emergency provisions would have to be resorted to. What is your view on that, is there cost-cutting happening at different levels?
    Cost cutting is there. However, we at Maruti Suzuki look at all opportunities, closely look at all our processes all the time and not necessarily because there is stress in the industry, not just in those circumstances, but in any circumstances we look constantly at our processes, our procedures where we can reduce our costs. However, one thing which guides us definitely is that there should be no erosion of value as far as customer is concerned. So, all our processes through Kaizen, at the factory, elsewhere, we do try to be more efficient as far as cost is concerned.
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