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Incentives needed to turn around motown fortunes: Maruti Suzuki's RC Bhargava

Maruti Suzuki chairman says monsoon pickup has kindled hopes, asks banks to step up credit.

, ET Bureau|
Updated: Aug 20, 2019, 12.13 PM IST
Bhargava said if banks increased credit availability to consumers as well as dealers, it would help improve the situation.
NEW DELHI: A lower base and good monsoon rains may help bring growth back to the auto market in the second half of FY20, but a meaningful turnaround hinges on government incentives, Maruti Suzuki chairman RC Bhargava said.

A revival in the sense of “positive growth” will start from the third or fourth quarter, partly because of the lower base effect as sales have been falling for months, the chairman of the country’s largest carmaker told ET. A pickup in monsoon rains has also kindled expectations of an improvement in rural markets, “but of course, some incentives have to be given to get the industry going”, he told ET.

‘Maruti has Cut 3,000 Temporary Jobs’
Automakers are reeling under the worst slowdown in the market in about two decades. Passenger vehicles sales dropped nearly 31% in July, the sharpest fall since 2000. Including other segments like commercial vehicles and two-wheelers, the fall was almost 19%. At Maruti Suzuki, the country’s largest passenger vehicle maker, sales fell 36% from a year earlier in the past month.


Manufacturers are resorting to plant shutdowns to adjust inventory to the weak demand, which has led to job losses in the industry. Across vehicle and component manufacturers and distributors, some 350,000 people are estimated to have lost jobs in the past few months.

Bhargava said Maruti Suzuki had cut around 3,000 temporary jobs.

“When contracts of temporary workers expire it is not renewed, especially during the downturn,” he said. “However, this is a part of the business, when demand soars, more contract workers are hired...”

Slowdowns are cyclical and businesses are used to that, but the one the industry is undergoing now is different from those of 2008-09 and 2013-14, Bhargava said.

Higher insurance costs as well as introduction of stringent safety and emission rules have increased the cost of purchasing a car by as much as 10%, further damping demand when buyer sentiment is already low due to the economic slowdown. The problem was compounded by a crisis in the nonbanking finance sector, a major financier to the auto industry.

Bhargava said if banks increased credit availability to consumers as well as dealers, it would help improve the situation.

Easier tax rates
The Maruti Suzuki chairman also echoed a demand that industry executives have been raising: easier tax rates. He, however, said the government could do that with riders.

“Personally, we would like to see GST benefits linked to greener and cleaner cars… Hybrid vehicles are 25-30% more efficient (than petrol- or diesel-powered ones); it (hybrid technology) will help reduce import of oils … It costs extra to make these cars and there should be some incentives to promote their use,” he said.

Rolling back higher road tax by states and deferring the proposal to raise vehicle registration charges would also help, he said.

Bhargava said the slowdown in the automobile industry had started about a year back. “The first three quarters reported a marginal drop and were not that alarming. But the last quarter, the first quarter of this 2019-20, saw a substantial drop in sales, by 18.6%. That is when everyone has woken up … as it (slowdown) affected the economy. Slowdown is across cars, two-wheelers and commercial vehicles.”

Shashank Srivastava, the executive director for marketing and sales at Maruti Suzuki, said the company was pinning its hopes on festive sales.

“August does not seem to be any different than the previous three-four months. The expectation is demand will pick up with the festive season that starts from the first week of September,” he said. “But production will depend on retail sales … There is no point in increasing factory and dealer stock if demand stays muted.”

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