The number of helmets on discussion tables at Maruti Suzuki India's showrooms is rising, a visible sign that more two-wheeler users are looking to upgrade to cars, according to the company's Senior Executive Officer for Marketing and Sales, Partho Banerjee.
The trend has gathered pace since the Goods and Services Tax (GST) 2.0 regime came into effect on September 22, spurring demand in the entry-level car segment. Maruti Suzuki reduced prices of its cars by up to 24% or Rs 1,29,600 following the rate rationalisation.
"We are witnessing a growth in the entry-level car segment, which highlights the fact that a new set of customers is coming. The number of helmets in our showrooms is increasing on the discussion tables. Earlier, there was a limited number of customers coming to our showrooms on two-wheelers to buy a car. That number has increased now, and such customers are looking forward to upgrading to a car. The basic purpose of GST 2.0 was to help upgrade the people, enhance mobility and increase car penetration. We need to wait and watch. But so far, it is working, as the contribution of small cars is increasing in overall retail sales," said Banerjee.
Since the implementation of GST 2.0, Maruti Suzuki has garnered 4,00,000 bookings in four weeks, averaging nearly 1,00,000 bookings a week, the highest ever in its history. The company has also retailed close to 2,50,000 vehicles in this period, marking its strongest festive performance to date.
The entry-level models -- Alto K10, S-Presso, Celerio and WagonR -- have together contributed close to 80,000 bookings. Banerjee said this growth is being led by customers moving up from two-wheelers, which is exactly the kind of shift GST 2.0 was intended to encourage.
"The basic purpose of GST 2.0 is to ensure that the people at the lower level are able to come up and afford a car. In four weeks, we have seen a good traction of two-wheeler users coming to our showrooms. The contribution of entry-level cars to our retail sales has increased from 16.7% during GST 1.0 to 22.2% in GST 2.0. That is a sizeable jump. Even a 1-2% increase is sizeable. But right now, it is close to 5%," he observed.
According to Banerjee, growing motorisation depends on this very cycle of upgradation. "Increasing motorisation is important. The car penetration in India is at 34 per thousand people. If people buy a car now, it is possible that in four years from now, they will upgrade to another car. The cycle keeps on going. The motorisation can only increase if the two-wheeler users upgrade to four-wheelers," he pointed.
Maruti Suzuki expects the demand to remain strong through the festive season. "Some of the models and variants are expected to be out of stock after Diwali," Banerjee said, adding that the company is expecting bumper sales during Dhanteras and Diwali.
To support the increased volumes, the company has expanded its use of rail transport for faster deliveries. "We are using rail rakes to dispatch our vehicles. We have started sending our vehicles to Anantnag. We are using trains to send our vehicles to different parts of the country. Our logistics team is working with Indian Railways to see to it that how quickly they can transfer the vehicles from our stockyard to dealers," Banerjee noted.
Under GST 2.0, the relatively smaller cars (sub-4 metre models) are in the 18% slab, while the compensation cess on automobiles has been completely removed. They earlier attracted a GST of 28% and a compensation cess of 1% to 3%, resulting in a total tax incidence of 29% to 31%.
The bigger models, as well as the luxury cars, have been placed in the 40% slab now. In GST 1.0, the overall tax on them was from 43% to 50% (28% GST + 15% to 22% compensation cess).
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