Maruti in wait-and-watch mode for June, bullish on rural growth

After May turned out to be a disaster for car sales, market leader Maruti Suzuki is not entirely certain if the tide will turn in June.

“The pent-up demand could come through but the problem there is we are not sure how the Covid situation will unravel,” Shashank Srivastava, Senior ED – marketing and sales, Maruti Suzuki told Autocar Professional.

The suspension of retail business due to the lockdowns should have typically led to pent-up demand and thereby helping OEMs post healthy numbers in June. However, the extension of lockdowns in multiple states could dampen industry prospects for the month and for demand to rebound, “it really depends on the unlocking process”.

Maruti Suzuki’s May sales of 32,903 units (which it would have comfortably clocked in a week during the good times) reflects the scale of impact dealt by the multiple lockdowns in most parts of the country. Nearly 2,500 of its 3,140 outlets remained closed for “most of the month”.

According to Srivastava, the second wave of the pandemic has been extra severe on multiple levels: more cases and fatalities along with a larger geographical spread. These factors have adversely impacted consumer sentiment. However, the economy's growth projection for this financial year (RBI’s revised GDP growth forecast to 9.5 percent, from the original 10.5 percent, in its latest monetary policy) is counted as a factor that will support the market revival.

Given the scale of the challenge this year, it is “more of an uphill task” for Srivastava and his industry counterparts. However, he says, while the sentiment is negative, the basics of the rural economy are “still strong”. This is good news to Maruti Suzuki, which gets 40 percent (39 percent in 2019-20) of its sales from rural markets. 

Rising aspirations and higher disposable incomes have spurred buyers here to go in for cars which explains why most manufacturers are increasing their presence in smaller towns. Rural India could therefore be a key growth engine this fiscal thanks to the forecast of a normal monsoon.

Additionally, there are other positive factors like a 3-4 percent higher sowing of Rabi crops, and “very good” procurement level for wheat during April and May.  “So in that sense, basic economic fundamentals seem to be strong,” says Srivastava. The current negative consumer sentiment is a dampener. However, it may not take long to change as “human sentiments are very transient”.

This was especially evident in the beginning of April when everything seemed buoyant but “the mood suddenly came down” once Covid struck again. The havoc it has wreaked across the country also means that those households which have seen bereavements would have dipped into their savings. To expect them to go in for a car purchase at this point in time may not be quite realistic.

As for the post-lockdown ramp up, Srivastava expects this to be easier than last year. “This time. industrial units have not been shut in the local lockdown so on the supply side it is probably going to be a little better this year,” he says Srivastava. However, there are other challenges to reckon with like the semiconductor shortage and limited oxygen for industrial use. 

The fact that Covid cases are declining is good news even though concerns over a possible third wave can cloud sentiments. Srivastava says that pretty much like the ‘just-in-time’ approach for manufacturing vehicles, the industry is now taking the ‘just-in-case’ approach for preparing itself to meet the third wave. 

“We have quickly put standard operating procedures in place though I believe vaccination is the final solution, not only for our factory but also for our dealers and their staff,” he adds. All these steps are being taken for the safety of customers visiting the showrooms while gearing up for the third wave “which will probably come at some point in time”.