At the end of October, India’s largest carmaker Maruti Suzuki India said that it clocked the highest ever wholesale sales for the month, with a market share of 51.1% in India automobile sector. Banking on the healthy sales it saw through the festive season, the company has also reportedly amped up its production estimate for the rest of the financial year.
Speaking to TNM, Shashank Srivastava, executive director, Marketing and Sales at Maruti Suzuki India says that the company saw an interesting shift towards hatchback vehicles as against sedan cars in the past few months. This is because consumers are now looking for functionality and are spending consciously. And despite a good festive season, Shashank says that uncertainty still remains in the market beyond December.
Edited excerpts of the interview:
How were car sales during Dussehra and Deepavali?
Dussehra period was in October, which was good. We saw the highest ever wholesale sales for Maruti Suzuki in October 2020 selling 166,825 passenger vehicles and light commercial vehicles combined domestically. The Diwali period is also very important, and in this five day period, the retail sales were marginally higher than the rest of the year.
I think the momentum is there. And the only thing we have to see is how much of the retail sales happened because of the pent-up demand. That is where the uncertainty lies.
Do you see this momentum sustaining? Does it mean demand is reviving?
With the booking momentum seeming to be good post Diwali as well, we are quite confident about demand for the quarter. But beyond December, I think we need to consider the fact that there is a very high correlation between auto sales and the GDP per capita growth. So, the long term steady demand will obviously depend on the economic parameters.
Secondly, cars are a discretionary spend. There needs to be a lot of good sentiment for a consumer to consider buying cars. At the moment, there is a question mark on that sentiment because of COVID-19. There could be positive sentiment if you find the vaccine, and a negative sentiment if case load increases. So, there is no way to know, which makes all Original Equipment Manufacturers (OEMs) very apprehensive in the auto industry to make a prediction right now.
The Federation of Automobile Dealers Associations of India (FADA) had said that on-ground sales weren’t healthy. It had even asked automakers to assess the on-ground inventory level and curb production. What is your sense on this? How are you handling building up inventory?
FADA was referring to Vahan data collected from Regional transport Offices (RTOs), which showed a decrease in retail sales and that is why it was concluded that there was inventory build-up. But if you talk to dealers on the ground, there is actually very little inventory. And as far as the data on retail sales is concerned, it was a lot higher than wholesales. So there would have been a reduction in inventory rather than building of inventory. Moreover, Vahan data, which is the basis of that statement, has some anomalies, one of which is that it collects vehicle registration data from all RTOs. There are about 1464 RTOs in India and only 1,257 are a part of Vahan. FADA data doesn’t include figures from Andhra Pradesh, Telangana and Madhya Pradesh.
Moreover, some states allow temporary registration, which is valid for 30 days. Vahan captures permanent registrations. So sometimes vehicles could be shown as not being sold up to 20-30 days from the sale happening. Hence, we need to look at these factors before we come to conclusions based on the data
In terms of variants, are you seeing entry-level cars and hatchbacks doing better?
Yes, there has been a shift towards the hatchbacks. The real loss of sales seems to have been in the sedan category. At one point of time, sedans were about 22-23% of the industry. This year, they are just about 10%. The gainers are SUV and hatchback.
What would you attribute this to just change as the shift in demand to?
There are different reasons for the increase in each segment share. Firstly, it is clear that post the pandemic, consumers have downgraded their choice. People are looking for more functionality buying. They have moved from conspicuous consumption to more conscious spending. Therefore, functionality and utility have increased.
Another reason why sales have gone up is because of the new models that have been launched. We launched the new Vitara Brezza in an entry SUV, we had the S-cross in mid-SUV. There was also KIA’s Seltos and Sonnet, Creta from Hyundai, among others. Those have led to the increase and greater consumer interest. It has been long observed in the automobile industry that new launches stimulate demand in the market.
There seems to be a shift from buyers preferring diesel to now preferring Petrol and CNG vehicles as well. Why is that?
Diesel was actually the preferred choice about 5-6 years back and 60% of the industry sale was diesel. That reduced to about 30% last year and this year, it is less than 17%.
The reason for that is that there has been a convergence in the price of diesel and petrol. And so, the running costs have become similar. The cost of acquiring a diesel car has also increased because of the BS-VI norms. The difference now is almost Rs 1,50,000. Hence, the economic logic of buying diesel no longer exists.
Today, if you look at hatchbacks, less than 03% of the sale is for diesel variants. If you look at the passenger car, 1.5% is now diesel. And the overall market is less than 17%. It's only the SUVs where people are still buying diesel variants in reasonably large numbers.
Also, CNG (Compress Natural Gas) is also picking up because of the increase in the number of CNG stations in India. Maruti sold 106,000 vehicles in CNG last year, and this year we plan to sell about 140,000 CNG vehicles.
What about rural vs urban? Is rural demand higher?
If you look at the April-October period, rural demand is higher than urban to the extent that for Maruti, rural sales account for almost 40% as against 38.5% last year. So, the market has bounced back a little better. It is clear that it is because of the better monsoon, which has been 9% higher than last year.
Despite the uncertainty right now, do you have a rough estimate of when hen the auto industry will come back to a position where you can say that demand is actually returning and here to stay?
Short answer is we don't know.
I can go on talking about different factors like the economic factors, COVID, the recovery, the vaccine, rural sales, monsoon, etc, but if I am being really honest with you, we don't know when it will come back. But certainly, we will have a better picture once COVID-19 pandemic gets behind us. Post that, we will focus purely on economic factors, which are slightly easier to project.