Maruti's sales show the middle class unfazed by demonetisation

Madhuchanda DeyMoneycontrol ResearchOver the weekend, the country’s largest car maker Maruti Suzuki raised prices of its products by up to Rs 8,014. On the face of it, the move was dictated by a rise in input costs, but the deeper significance is that the company is confident about underlying demand less than three months after demonetisation is supposed to have punctured the hopes of its middle-class customers.Maruti, the country’s top carmaker with a market share of close to 51 percent, clocked volume growth of 3.5 percent in the October-December 2016 quarter, well ahead of industry growth of 1.8 percent.An analysis of the volume numbers throws up quite a few interesting trends – firstly, the middle class saved the day for Maruti with sales to government employees increasing by 34 percent over a year earlier, thanks to the bounty from 7th Pay Commission and OROP (One Rank One Pension).Volume growth was led by UV & Vans segment (up 33 percent YoY), which was partially offset by 6 percent shrinkage in the mini segment.The improvement in the product mix also indicates that government employees have also migrated to higher-priced (but still middle-class) models such as Baleno and Brezza. These are priced at upwards of Rs 5.4 lakhs and Rs 7.2 lakhs, much higher than the average realisation per vehicle of the company at Rs 4.3 lakhs. The waiting period for Baleno (24 weeks) and Brezza (18 weeks) shows the strength of demand at these price points.Clearly, the salaried class which forms the backbone of the company’s customer base has taken demonetisation in its stride. It accounted for 45 percent of sales with 80 percent of overall sales coming from financing.The strong show of Maruti is in sharp contrast to the fortune of luxury car makers in India. Luxury brands have been hit in the aftermath of demonetisation – a recent newspaper report cited channel checks as showing that brands like Mercedes-Benz, Audi and BMW are offering discounts ranging from 8 percent to 20 percent to customers.All this should be music to the ears of Prime Minister Narendra Modi because it suggests – contrary to much that has been said or written -- that demonetisation is hitting the rich more than the  middle-class or poor; this is a message that the ruling Bharatiya Janata Party would clearly not mind sending as it heads into key assembly elections in Uttar Pradesh and Punjab.