Price shock: Maruti to cut petrol car production this year

New Delhi: The steepest price hike in petrol ever is forcing Maruti Suzuki India to lower the production of petrol cars.

Since much of its petrol car production happens in Gurgaon (around 10 lakh cars are made here every year), the company is expected to go easy on production here first. Mayank Pareek, Managing Executive Officer (Sales & Marketing), told Firstpost that the company will have to moderate production of petrol cars but did not specify by how much. Petrol cars account for the bulk of Maruti’s sales - around 75 percent.

An analyst based in Mumbai said Maruti sold 20 percent less petrol cars in April and, therefore, it made sense for the company to take timely action and reduce inventories on petrol models after the Rs 7.5 hike in petrol prices since Wednesday. This analyst, who declined to be named, also said that if the government went ahead with the proposal to raise diesel prices, even sales of diesel cars would be impacted.

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[caption id=“attachment_321474” align=“alignleft” width=“380” caption=“Mayank Pareek, Managing Executive Officer (Sales & Marketing) of Maruti.”]  [/caption]

Pareek said that the unprecedented increase in petrol prices meant first-time buyers will likely postpone purchases and those who can afford diesel vehicles would look for a diesel car to buy. Either way, sales of petrol cars would suffer.

“We are still recovering from the shock (of the sudden price hike). Two years back, whenever petrol prices were increased, sales suffered for 6-8 weeks but then bounced back. I am not sure this will happen now since the price increase shocks are so frequent,” he said.

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Maruti’s inventory levels - which means cars which are lying with dealers - have already risen to a month against the normal 2-3 weeks and production cuts are being planned to reduce a further inventory pileup.

To attract customers to petrol cars, Maruti has already begun offering the highest-ever discounts on its products. Pareek said the Alto - which is the single largest selling car model in India and has no diesel powertrain - comes with a Rs 30,000 discount. Other petrol models - A-Star, Ritz, WagonR and Estilo - can get you discounts of between Rs 18,000-22,000.

Another Mumbai-based analyst pointed out that the earlier petrol car sales decline was 10 percent at the beginning of the year. “This was the forecast when we had predicted that the second half of the year would see a revival. But now, petrol car sales could fall by more than 15 percent”.

Not just Maruti, other car makers are also facing a tough time. According to a Times of India report on Friday, Hyundai Motor India is offering discounts on its petrol models - Santro offers a total benefit of Rs 42,000 (cash discount plus other benefits), while i10 gives Rs 46,500. Ford India is offering benefits of about Rs 12,000-15 ,000 on its petrol variants. The same story said the petrol car market had declined by 15 percent in the last fiscal when diesel car sales grew 35 percent.

Pareek said that apart from Maruti adding about 1.5 lakh diesel cars to the market this fiscal, there does not appear to be any other significant addition to the diesel car portfolio in FY13. Maruti has inked a sourcing pact with Fiat which will take up its total diesel car production from 2.5 lakh to 4 lakh units.

So how will the spiralling demand for diesel cars be met? Pareek said it was not always wise to buy a diesel car even after petrol prices have gone up so significantly. “Our analysis shows that 26 percent (or one in four) of customers drive even less than 5,000 km in a year. What sense does it make for such people to pay a Rs 1-1.5 lakh premium to buy a diesel car? We will shortly be coming out with a campaign to educate customers on when to buy a diesel car”.

So now, wait for car companies to tell you which car to buy.