Times are so tough in the car market that market leader Maruti Suzuki may soon let you drive away with any of its top-selling cars ? the Alto, Swift or the Dzire ? without paying a rupee upfront. After Tata Motors and Volkswagen, Maruti plans to offer financing schemes that include zero down payment, EMI holidays and buyback options ? where it assures the buyer a pre-determined value when it buys back the vehicle after 3-5 years.
Together with prevailing discounts, the schemes are expected to drive up car sales and bring down burgeoning inventories with dealers and in factories. The going has been tough for India?s biggest car maker: Sales dipped 9% y-o-y to 97,955 units in February while stocks, at over 1.3 lakh units, accounted for 5-6 weeks of inventory as compared to normal levels of 3-4 weeks.
?I have never seen such tough times with volumes weak and inventories piling up. To create some excitement, we are looking at a buy-back scheme. However, it?s a somewhat complicated model and globally many firms have lost money on such models. So we are trying to work out something that will be feasible here,? Maruti?s marketing & sales COO Mayank Pareek said.
Two schemes are being considered. The first is a pure buy-back scheme wherein it agrees to buy the car after 3 or 5 years at a pre-determined price.
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The second provides for ?EMI (equated monthly instalment for financed cars) holidays? where a customer trades in an old car and starts paying for the new one after a year. In the ?zero down payment? model, a customer walks in with an old car and walks out with a new model without paying any money upfront, but just pays the EMI.
The schemes will target buyers who already own a car ? this group is large accounting for 53% of total sales today. ?The schemes attempt to convince customers to buy a car today and to not postpone the purchase. While we have enquiries, conversions are difficult so we need to convince buyers that this is the right time to buy,? the official said.
Such incentives will be a first for Maruti Suzuki, which so far has not faced as much trouble as competitors like Tata Motors and Volkswagen.
In April-February FY13, Maruti?s volumes have risen 5.55% (at 9.43 lakh units), while Tata Motors and Volkswagen saw sales dip 11% (at 2.91 lakh) and 16% (at 58,959 units), respectively. Total passenger car demand in the same period fell 4.64% at 17.14 lakh units. To reduce inventories, Maruti has also resorted to shutting its petrol car-focussed Gurgaon plant for two days in the last four weeks, indicating that more production cuts may follow.
These schemes will complement existing discount schemes offered on cars, including Maruti?s ?True Value? used car sales business. Maruti already offers significant discounts of Rs 20,000-30,000 under its loyalty programme, where owners of existing Maruti cars trade in for new models with a special discount.
Frost & Sullivan South Asia MD VG Ramakrishnan said that other major car makers like Hyundai, Ford and Toyota Kirloskar may also have to follow the market leader?s example with such schemes. ?It reflects the market conditions that even Maruti has to resort to such programmes to sells cars and the rest will also have to do something dramatic. A buy back scheme makes the customer come to the showroom and is likely going to be offered on fast-moving models that will be easy for the company itself to sell in the used car market,? he said.
Much of the competition is already offering similar schemes. After slashing prices of the Indica and Manza by up to Rs 50,000, Tata Motors has offered to pay Manza buyers 60% of the purchase price if one resells it to the company after three years. Those interested in the Nano compact can also pay the entire amount with a credit card through a 12-month EMI scheme (Rs 8,333 per lakh) with 0% interest. Meanwhile, Volkswagen had an offer where the Vento could be driven away from a company showroom by paying just Re 1 while exchanging an old car and customers could pay the balance a year later either in full or in 36 EMIs. Even Honda is offering 0.01% interest rate for the Brio hatchback and City sedan.
?Those with their own finance arms like Volkswagen and Tata borrow directly from the market and thus can offer better interest rates and deals to their customers. For Maruti Finance, which ties up with banks instead and doesn?t offer loans directly, such a business model can prove tough because of the high volumes involved,? Ramakrishnan said.
Deal street
* Maruti offers discounts of up to R50,000 on petrol
cars; some diesel cars are coming with deals too
* Tata Motors has cut prices of Manza & Vista by R50,000; offering to pay back 60% of Manza?s price after 3 years
* Volkswagen?s Vento can be driven from dealers for
just R1; balance can be paid in a year or through EMIs
* A Skoda dealer in Gujarat offers a Fabia free with Rapid sedan. The catch: Hatchback will be delivered after 5 years
