Amidst slowdown in sales of cars, market leader Maruti Suzuki has cut its domestic volume growth for the current fiscal by a third to 2%. The new FY14 forecast was announced by Japanese parent Suzuki Motor Corporation (SMC) on August 1, as part of its financial results announcement for the April-June FY14 quarter. SMC has a 56.21% stake in Maruti.
Maruti, a leader in small cars, which accounts for 53% of India?s 2.7 million passenger vehicle (PV) market, had till now given a forecast of a 4-6% growth in domestic retail sales for FY14. Interestingly, company dealers have been given a far higher target of 10% volume growth for the fiscal. According to latest estimates by the Society of Indian Automobile Manufacturers, the country?s total PV sales in FY14, is expected to grow by 5-7%.
RC Bhargava, chairman of Maruti Suzuki told FE that a 6% growth estimate had been given at the starting of the year, but something closer to 4% might be more possible. ?Between 2% and 4%, there is not much difference. In my experience, I don?t think I have seen an economic situation as bad as this. There doesn?t seem to be a light at the end of the tunnel,? he said.
A drop in demand and excess production capacity has led Maruti to shut its two plants in Gurgaon and Manesar several times this year (June output went down 25%), while asking about 400 temporary staff to go on leave. This fiscal till date (April-July FY14), Maruti?s domestic volumes have dipped 4.13% at 3.20 lakh units, while total PV sales for the industry fell 7.49% at 7.93 lakh units. In FY13, Maruti had recorded a 4.44% growth at 10.51 lakh units, while total PV segment sales had gone up 2.15% at 26.86 lakh units. Maruti currently has just over 40% market share in the PV segment. Rivals such as Hyundai, Tata Motors and Mahindra have also posted 3.23%, 34.82% and 8.42% drop in volumes respectively in the April-July FY14 period.
What is a worrying trend for carmakers is the quick shift in demand patterns ? from petrol to diesel cars, from sedans to SUVs, which takes time for manufacturers to adjust. An example is the demand for utility vehicles which had grown 52% in FY13, but in July this fiscal posted its first drop in over four year (17.5% decline).
?Just when you have a SUV ready for launch, or get your diesel engine plant up and running, the demand shifts to petrol cars. It takes us about three years to develop a new car or set up a new plant, so when consumer demand does an about turn, it is tough for us to justify our investment,? an industry executive said.
Added Bhargava, ?Ultimately we need stability in fuel prices to keep demand steady. If it keeps changing, it will be a challenge. I expect fuel prices to be stable from here on, the government has indicated that diesel fuel will not have a subsidy over time?.
