Pressure from competition on account of new launches and high discounts have forced the car maker to shell out additional discounts during Q1 FY20
Continued weak demand since the past several months has forced India’s largest car maker Maruti Suzuki to increase discounts in the quarter gone by to reduce unusually high inventory.
The car maker said in an analyst conference call that discounts for the June quarter stood at nearly Rs 17,000 as against Rs 15,125 during the March quarter.
Pressure from competition on account of new launches and high discounts have forced the car maker to shell out additional discounts during Q1 FY20. Compact SUVs like Hyundai Venue and Mahindra XUV 300 may have had an impact on demand for Maruti products.
June quarter discounts, however, were much lower than December 2018 quarter when discounts hit an all-time high of Rs 24,300. These are average discounts offered by Maruti Suzuki. Individual discounts differ from model to model.
The rise in discounts comes after the Delhi-based maker of Swift, Dzire and Baleno reported a 27 percent slump in net profit for the quarter-ended June to Rs 1,435 crore on July 26.
Ajay Seth, CFO, Maruti Suzuki, said, “At present, the market is looking weak with very little demand traction. Hopefully, this has come to the notice of the government and something soon is expected on this. It is very difficult to provide any guidance on outlook.”
Head of auto companies have expressed concern over the continuous fall in demand and has asked the government to take some immediate measures on the lines of the stimulus package announced by former Finance Minister Pranab Mukherjee during the United Progressive Alliance (UPA) government during 2008.
Meanwhile, though the dealer federation has lauded measures taken by the passenger vehicle manufacturer’s community in pare down inventory in the past couple of months, Maruti Suzuki said its inventory has continued to remain high.
“Inventory continues to remain high at around one month,” said RS Kalsi Senior Executive Director, Maruti Suzuki, during the conference call. Inventory days are the number of days that a car remains unsold to the retail buyer.
Kalsi said that though the rural market from where Maruti generates nearly 40 percent of its volumes has bailed it out during a market meltdown, the June quarter has not been in line with the past.
“The rural market was under pressure in Q1, with 17 percent degrowth seen, which was similar to urban market decline,” added Kalsi.
Subsequently, the company announced resignation of three directors from its board: Kazunari Yamaguchi, Director Production; Kazuhiko Ayabe and Toshiaki Hasuike.
While Maruti did not provide any reason behind their exits, the company announced the entry of new members on the board. Takahiko Hashimoto has been appointed as Additional Director and Whole-time Director. After shareholders approve his appointment at the AGM in August, he will be designated as Director (Marketing and Sales).Hisashi Takeuchi and Hiroshi Sakamoto have been appointed as Directors to fill the casual vacancy caused by the resignation of Ayabe and Hasuike, respectively.
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