Doubtful of sustainability once pent-up demand fizzles: Maruti Suzuki

India’s largest carmaker Maruti Suzuki India (MSIL) has expressed doubt over long-term sustainability once pent-up demand fizzles, leading to uncertainty over the future course of the automobile industry.

Having cornered 50 per cent share of India’s car market, MSIL is one of the biggest employers in the country.

Record growth in monthly sales may not be an actual barometer of industry health, given long-term sustenance of this growth remains questionable, cautioned the carmaker.

Fearing demand may evaporate, the industry has requested the government to defer the implementation of fuel efficiency norms and the second stage of emission norms to April 2024, in a bid to keep the cost of acquisition stable.

“The month-on-month growth numbers are good, but there is a high element of pent-up demand in that. It is giving a misleading picture of the overall demand,” said Shashank Srivastava, executive director, MSIL.

On the reasons behind the fall in compound annual growth rate (CAGR), said Srivastava, was the high acquisition costs in terms of high vehicle pricing due to high taxes, higher costs of raw material, higher production costs, and insurance and registration costs.

He told Business Standard that the manufacturers have represented these issues to the government and discussed high goods and services tax rates and deferring the implementation of corporate average fuel efficiency (CAFE) norms with the officials concerned.  

The industry data shows that while the CAGR of passenger vehicle (PV) sales stood at 12.9 per cent for the five-year period between March 2005 and March 2010, it fell sharply to a CAGR of 1.3 per cent for the five-year period between 2014-15 (FY15) and 2019-20. Between 2009-10 and FY15, sales rose 5.9 per cent.

In fact, the CAGR for PV sales between 2000 and 2010 stood at 10.3 per cent and that between 2010 and 2020 has been 3.6 per cent. Clearly the growth rate has slowed over the past decade, more so over the past five years. Though car sales are closely related to gross domestic product (GDP) growth rate numbers, industry insiders say PV sales have suffered despite a decent GDP growth rate.

December marked the best growth in retail sales of PVs, as new launches, cheaper finance, and pre-buying to escape the January price increases helped boost demand. The segment also recorded the second-best monthly total this financial year.

PVs comprise cars, sport utility vehicles, and vans. PV sales grew 24 per cent in December to 271,249 units, against 218,775 units recorded in the same month last year, according to the data sourced from 86 per cent of the regional transport offices, shared by the Federation of Automobile Dealers Association. The auto industry has now made a representation to the government to defer the implementation of CAFE-2 regulations and Bharat Stage (BS)-VI stage II norms to April 2024. As of now, the CAFE-2 norms that aim to make cars more fuel efficient are set to come into effect in 2022, and BS-VI stage II norms are set to come into force beginning April 2023.

Srivastava said this is because the norms will result in price hike, leading to increase in acquisition cost. The cost of acquisition going up impacts more this year, as the worsening economic condition of the country has forced first-time buyers to switch to the cheaper entry-level segment.

“Price sensitivity is very high. Hatchbacks are almost 50 per cent of the market. That is why we are trying to point out that while individual monthly growth may be high, if we look at the future, it may not be that good,” added Srivastava.