“Diverging demand patterns between utility vehicles and the small car segment is continuing. The company is working on increasing the flexibility in operations to produce vehicles as per the evolving market demand,” Maruti Suzuki India Executive Officer Corporate Affairs Rahul Bharti said in an analyst call.
He noted that the automaker has discovered that one of the reasons for the recent dip in the margins is because it was producing “some slow-moving cars”.
“And we did not have sufficient production capacity for the cars that had demand. If we had the flexibility of both, whether it is semiconductor supplies or in-house production, we would probably have less of such a problem,” Bharti said. Hence, it’s a conscious move to increase the flexibility of production operations, he added.
MSI currently has an installed production capacity of around 23 lakh units per annum spread across its plants in Haryana and Gujarat.
Bharti said the initiative “comes at a small cost” as it involves a slightly suboptimal format of production. Elaborating on the drop in sales of the entry level cars, he noted that the cost of acquisition has gone up disproportionately because of the increased regulatory intensity in the past few years. “And the income of the customer in this segment has not taken off. We are hoping that sooner or later, the income growth will catch up, and the small car segment will revive,” he added.
Bharti noted that the company has also seen reduction in first-time buyers.
“…almost a 10 per cent reduction in the percentage of first-time buyers from the market for us. So, it’s closely correlated. We are hoping that when the income growth in this segment of the population catches up with the increased cost, and the regulatory intensity does not move up further in the next few years, at some point in time, this segment should come back,” he stated.
According to the recent SIAM data, entry level car wholesales in India have dropped to 35,000 units in the second quarter this fiscal as compared to the peak of 1.38 lakh cars in July-September 2018-19.
Replying to a query regarding overseas shipments, Bharti said that going ahead the company plans a three-fold rise in its exports volume by increasing its exports to 7.5 lakh to 8 lakh units a year by 2030-31.
MSI continues to be the largest exporter of cars from India.
“Our focus continues to be on Africa, Latin America, Southeast Asia and even the Middle East. Barring the US and China, we will be almost everywhere,” Bharti said.