Dealers of Maruti Suzuki, India’s largest carmaker, have been warned of a tough year ahead with multiple challenges, including a sales growth that will taper down to single digits.
The Delhi-based maker of best-sellers such as Dzire, Alto and Baleno took over 1,200 dealers to Macau last week to apprise them about the current market environment and the steps that are being taken to counter the demand slowdown. The event was led by Maruti Suzuki chairman, R C Bhargava.
“The message was loud and clear for the dealer participants which is, ‘gear up for more impacts this year’. FY19 was tough and FY20 will be tougher. Most dealers managed to just about scrape through FY19 but if the current situation continues then many especially smaller ones will surely shut shop”, said one of the dealers who attended the event.
Domestic passenger vehicle sales of Maruti Suzuki reported a growth of 5 percent last year, which was half of what was predicted by the company at the start of 2018. In April, its performance worsened, reporting a fall of nearly 20 percent despite its dealers offering 15-18 percent discounts to propel retail demand.
Tight liquidity (for dealers and car buyers), high insurance costs, lower buyer-sentiments and the on-going general elections have had negative effects on car purchases. Maruti Suzuki had to cut production by 20 percent in the last two months to restrict the build-up of unnecessary inventory with dealers.
As per estimates, at least seven of Maruti’s dealers (who run several dealerships) exited business last year. More could follow suit if the slowdown in demand continues. “Many dealers are using short term capital for long term needs. We expected some sort of financial assistance programe from Maruti to help us sail through this difficult period,” said one of Maruti’s dealers.
On May 8, the Federation of Automobile Dealers Association (FADA) acknowledged that there has been an unusual spike in closure of dealership in recent times, especially in metro and tier 1 cities. A substantial number of these was due to the financial stress caused by accumulated losses and reduced access to working capital needs.
Poor retail sales during the festive period meant inventory days (the number of days the cars remains unsold) shooting up to 60-65 days until January, which has been brought down to 40-45 days now.
Bhargava further added that Maruti was looking for a 5 percent growth in volumes during this year compared to the last year when it clocked 1.75 million units in the domestic market, including the sales of the mini truck Carry.
The growth will be aided by the new compact car designed on the lines of the Future-S showcased by Maruti at the 2018 Auto Expo. The new product which be a switch between a tall hatchback, and an SUV will make it to Maruti showrooms before the festive period this year.
A second new product will be launched after that, which will be sold through the Nexa showrooms. Besides, there will be the launch of the petrol engine option on the Brezza SUV and a sports version of the Ertiga with bucket seats in the middle row.
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