Friday, June 7, 2013

Why Maruti Suzuki will not make a single car today

Jun 7, 2013,New Delhi:--

For the second time in as many months, Maruti Suzuki India will not make a single car today at either its Gurgaon or Manesar plants. This comes just ahead of a six-day scheduled maintenance closure later in June.

Maruti manufactures about 5,000 cars every day so already it has decided to reduce production by 10,000 units this fiscal. And production may be halted again as market slowdown shows no signs of reversing.

Dealers said the company's inventory position has worsened to anywhere between 55 and 65 days in the last one month, against a normal of 45 days. While dispatches – which means cars Maruti sells to dealers - have slowed, retail sales (which means sales from dealers to customers) have slowed even more. This is leading to an inventory buildup.

Maruti's flagship Swift is witnessing unprecedented slowdown in sales because of overall sluggish market sentiment and also because competition has increased manifold

A leading Maruti dealer in the Delhi-NCR region said Maruti's flagship Swift is witnessing unprecedented slowdown in sales because of overall sluggish market sentiment and also because competition has increased manifold. "The Honda Amaze and the Renault Duster are giving tough competition to the Swift portfolio. India is not a country of multiple car owners so someone wanting to change the car goes in for these SUVs which are priced near the Swift, plus or minus a lakh rupees".

This dealer also noted that Kerala and Gujarat, which have traditionally been two of the strongest markets for Maruti, have declined and this has affected overall sales.

Morgan Stanley's Binay Singh and Yashesh Mukhi said in a note to clients that inquiries by customers at Maruti's showrooms are "still flattish." Retail numbers are much slower than wholesale numbers.

Maruti is not watching the market decline helplessly though. Chairman R C Bhargava said in an interview to Business Standard this morning that the company plans to phase out two compact cars – A Star and Estilo – and replace these with a new small car in 2014. The company is also developing a Light Commercial Vehicle on the Versa platform which should address concerns over slowing growth in hatchback market in the near future. It is also expected to make an addition to its SUV portfolio next year.

The dealer quoted earlier also averred that the company has revived internal discussions on whether the 660 cc 'K' cars which are a huge success in Japan should be launched in India. "The company revived discussions about it six months back. It sought dealer feedback. Dealers in large metros are not for it but those in smaller towns and cities enthusiastically supported this idea."

A 660 cc car for India? In the past, Bhargava and other company officials have vehemently denied any such plans, saying such a vehicle would not be viable in India.

Then, Maruti has been driving down overall costs and has been dealing with the inventory situation cautiously. But these steps may only mitigate the pain, they can's revive the fortunes of the country's largest car maker unless the market sentiment improves.

Chairman Bhargava said in that interview that slowdown is not over. "Even interest rate cuts are not key to reviving the economy or sales in the industry. In India, over 70 per cent of car purchases are financed by banks. An interest rate reduction of, say, one percentage point doesn't change a person's decision of buying or not buying a car – his equated monthly instalment comes down by only Rs 50."

Maruti had reported 14.4 percent decline in its total dispatches to dealers in May this year at 84,677 units. Its domestic dispatches declined 13 per cent at 77,821 units against 89,478 units in May 2012.

The company at present has a total installed annual capacity of about 15 lakh units, which will go up to 17.5 lakh units by September this year when its third

unit at Manesar goes onstream.

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