New Delhi: The country's largest carmaker, Maruti Suzuki India Ltd, is considering a request from its dealers to introduce measures to shield small-car buyers from price hikes as demand for the category continues to rise following last year's GST cut, according to a top company executive.
"We are getting feedback from our channel partners that the customers who book these entry-level models should receive some relief from the price hike we announced. We are seriously contemplating this. The final details and till what date this relief can be allowed has not been finalized yet but we are discussing," Partho Banerjee, senior executive officer of marketing and sales at Maruti Suzuki, told reporters.
To help small-car buyers, the company had rolled out a financing scheme in April with AU Small Finance Bank, covering four models: WagonR, Celerio, S-Presso and Alto K10. Under the scheme, customers can deposit an amount equivalent to their monthly car loan instalment into a recurring deposit (RD) account.
The proceeds can then be used as a down payment after three to six months for the purchase of a new car, Banerjee told reporters.
Maruti has implemented a price hike of ₹30,000 from June across all its models due to West Asia war-linked inflation, which has led to a surge in prices of commodities like steel, aluminium, and platinum group metals, among others, which are used in cars. Other carmakers like Hyundai Motor India, Mahindra and Mahindra and Tata Motors Passenger Vehicles had already announced price hikes earlier.
"There is huge pressure due to commodity price increase which has forced us to take a price hike. We tried to absorb it for some time but it is impossible to delay price hikes for a long time. But yes, we are considering if a price protection window for small car buyers can be introduced to protect them from this inflation," Banerjee said, adding that dealers have suggested going ahead with a hike in prices of larger SUV models.
Maruti's efforts to sustain demand in small cars also comes at a time when it has introduced a flex fuel model of its entry level car, WagonR, in a bid to increase share of the clean fuel technology in its overall sales. With expectation of cheaper E85 flex fuel at fuel stations, the company noted on Thursday that the vehicle can be an efficient and cleaner option for consumers.
Small-car orders for Maruti have surged, buoyed by cuts in the goods and services tax (GST) in September last year, but the company has struggled to fulfil them owing to production constraints.
Since the commissioning of its new production line in Kharkhoda in April, sales of entry-level mini cars have surged by 147% to 32,341 units cumulatively in April and May. Passenger car sales, which include hatchback and sedans, surged by 42% during the same period to 400,366 units. The company's overall sales increased 33% in the same period to 400,366 units, as per its latest sales data released on 1 June.
A part of the reason for the company witnessing a robust boom in small car sales has also come from the fact that it did not take a price hike for its models till June, allowing the 10% GST benefit which was implemented last year to stay longer in the market even as pressure builds on for price hikes.
Price hikes for small cars can reverse the affordability benefit which the segment received after the GST cuts, according to Ravindra Patki, managing partner at Vector Consulting Group.
"Small-car sales have been one of the breakthrough moments after the GST cut. The GST cut was structural as it moved the effective price of an entry-level car below a threshold for a large number of buyers who were interested but held back by affordability."
With small-car giant Maruti Suzuki seeing a surge in entry-level car sales and bookings since the GST Council announced tax cuts last year, Mumbai-based Tata Motors Passenger Vehicles also recognized the segment's importance and potential for growth.
“What is important to recognize is that customers did not move away from hatchbacks, because for millions of Indian families, this is still where their first four-wheeler mobility journey starts,” Shailesh Chandra, managing director and chief executive at Tata Motors PV, told the media ahead of the launch of the upgraded hatchback Tata Tiago last week.
On the financing scheme, Maruti Suzuki's Banerjee said customers will earn interest on the monthly amount they will deposit, which will be equivalent to monthly EMI instalments of the car they want to purchase. After three to six months, the consumer can take the amount collected in the account and make a down payment on the car loan, which they will use to purchase their selected cars.
