Maruti cuts discounts by 38% sequentially ahead of BS-VI rollout

India's top car manufacturer Maruti Suzuki reduced discounts on some of its models in the first three months of the calendar year and may continue to do so as buyers gradually return to showrooms.

Two of its peers, among the top five manufacturers, are also expected to follow suit.

The reduction in discounts also happens at a time when companies are gradually rolling out BS-VI grade vehicles, which are more expensive than the earlier generation ones.

Dealers and executives at three of the top five car makers told Moneycontrol that average discounts during March and April have fallen compared to December, January and February.

Ajay Seth, Senior Executive Officer of Finance & CFO, Maruti Suzuki India, said, “Discount is a question of market demand and supply. It depends on how the markets behave. If markets improve thereafter, discounts will also reduce.”

The industry leader said the average discount per vehicle offered by the company to its dealers dipped to Rs 15,125 during the Q4 FY19 from Rs 24,300 recorded during the October-December quarter. Seth added that fall in discounts sequentially 'is a positive'.

Rise in retail demand Lowering of discounts coincides with the rise in retail car demand. As per data supplied by the Federation of Automobile Dealers Association (FADA), retail volumes were up five percent in March compared to February. There are expectations of better retail demand post the completion of the general elections in May.

At the same time, other auto dealers added that certain slow moving models, which were already offering higher discounts, will continue to carry similar discount levels in the immediate months, till the time their Bharat Stage VI (BS-VI) versions are introduced.

Models that are getting upgraded to BS-VI -- the next generation emission standard to be introduced from April 1, 2020 -- will see a substantial price hike, especially if they are powered by a diesel engine. Companies are thus expecting consumers to advance their purchases to avoid the hike.

Petrol cars are expected to see an upward price revision of a minimum Rs 30,000, while diesel cars will get dearer by a minimum Rs 1 lakh. In addition, companies have been holding back price hikes since the last few months despite adverse currency fluctuations and higher raw material costs.

“Discounts have come down marginally of late. We have been holding back price hikes too. In this volatile environment it is difficult to predict sales two months down the line. Discounts may come down further, but a lot depends on competition,” said an executive at a Delhi-based company.

Companies had to offer unusually high discounts during December to get rid of excess inventory that was built up to meet festive demand. However, a majority of that inventory got carried over to January along with the same discount levels.

RS Kalsi, Executive Director (Corporate Planning), Maruti Suzuki, said, “The discounts are a dynamic situation. Now, maybe you had a lot of stock in anticipation of a great festival season, but that did not occur. So, we had to liquidate the inventories at our dealerships. We adjusted our production accordingly in Q4 and offered a reasonable discount.”