DATELINE GUJARAT / डेटलाइन गुजरात / ડેટલાઈન ગુજરાત: “Indian Car Market has a lot of headroom"

DATELINE GUJARAT | SUNDAY READ

“INDIAN CAR MARKET HAS A LOT OF HEADROOM” : says SHASHANK SRIVASTAVA,
EXECUTIVE DIRECTOR, MARKETING & SALES of MARUTI SUZUKI INDIA LTD

How would you define a Green Shoot in Economy?

The answer is when an Indian version of Lee Iacocca tells you, “Oh! come on this is the worst I have seen in last 30 years in my car sales career, but still India has a lot of headroom as far as car sales goes, because in India there are just 25 cars per 1,000 persons, which is far low as compared to 150 per 1,000 in China, 600-700 per 1,000 in US and 700+ per 1,000 in Japan.”

WHO WAS LEE IACOCCA

By the way, according to Wikipedia, Lido Anthony "Lee" Iacocca was an American automobile executive best known for the development of Ford Mustang and Pinto cars, while at the Ford Motor Company in the 1960s, and then later for reviving the Chrysler Corporation as its CEO during the 1980s.

Late Lee was born in year 1924 and passed away in 1992.

Lee remained active in business from 1946 till 1992 working at Ford Motor Company and Chrysler Corporation, which is almost 48 years.

THE INTERACTION

On 19^th November 2019 – Tuesday, Shashank Srivastava, Executive Director, Marketing & Sales interacted with selected media representatives (largely journalists handling business beat), while his visit to Ahmedabad.

Why do I compare Srivastava with Iacocca, because Srivastava has spent 30 plus years selling and marketing cars for one of the largest Indian car-makers - Maruti Suzuki India Ltd.

Srivastava, an Indian Institute of Management – Ahmedabad passout works at Maruti and started his career with the company handling job-function right from domestic field sales, with his exposure today for handling overseas marketing assignments, projects & operations.

We all know that auto-sector passing through severe stress is making headlines.

Low volume data reflected every month in the monthly business updates, as filed by the companies with the Stock Exchanges in India, since the financial year 2019-20 has kicked-off, increase in non-working days, at several automobile companies and resulting job-loss has been in news.

In such times, Srivastava interacted with journalists at Ahmedabad, explaining the reasons, as to what has really gone wrong and why the numbers are low?

While Shashank admits of this as one of the worst times for automobile sector in the nation, collecting his experiences since last 30 years, as far as negative growth or de-growth is concerned.

He is equally optimistic for the future, because Maruti Suzuki India Ltd has geared-up to brace the tectonic shift, well in advance, in terms of new emission norms for the vehicles, as prescribed by the Government of India.

The keyword for the automobile sector in India since last year has been BS VI, the new emission norms and Indian automobile companies which have been manufacturing BS IV emission norms compatible vehicles, will now have to manufacture BS VI compatible vehicles.

So, what does this shift really mean, for consumers, customer and a car-maker.

Srivastava, who has been an IIM-A alumini swiftly opened his conversation giving a native feel saying that he felt he was back home and that he walked the old memory lane passing through his alma mater and his immediate reaction while passing from there as he told the media gathering was that, “A Lot has changed.”

After a brief introduction and how the Maruti Suzuki India Ltd was keen to interact with regional media and extend its media outreach, Shashank was ready to take the questions (in time when SIMULCAST AND BROADCAST without answering any question or taking any question is in vogue).

Shashank answered questions ranging right from low sales volumes, explaining as to what was at the core of it, resulting dominos effect, market-share, new model launches, inventory numbers, the new order with BS VI vehicles, exports basket, used car sales numbers and the trends of hired car services v/s ownership.

DATELINE GUJARAT feeling this as one important primer and explainer from the horses mouth in times when Auto Sector is seen passing through severe crisis, decided to let the readers browse through the points discussed by Shashank (verbatim) in form of bulleted points with header topics, rather than a news form piece.

And here it goes, 64 minutes non-stop conversation, transcribed in form of bullet points with header topics for reader’s ease.

The first question which came was,

Given the auto-sector sales numbers, Maruti Suzuki India Ltd expects 20% drop this year in sales, so how are the headwinds for auto-major?

NUMBERS & OUTLOOK

Industry has been growing since last 6-7 years
But all of a sudden, the auto-sector is facing lots of headwinds
1^st Half year results for Financial Year 2019-20 are out
In retail segment the de-growth is in range of 13.5-14%
Whereas in wholesale de-growth is higher in range of 21-22%
It is a very challenging year
Why the drop in sales, is the most common asked question?
Prime reasons for drop in numbers are cost of ownership for a car has significantly increased, there are financing issues and there is a lot of confusion over emission migration from BS IV to BS VI, GST (Goods and Services Tax), political stability, good monsoons etc

COST OF OWNERSHIP

Cost of ownership/acquisition for a car has gone up significantly
On road price of owning a vehicle has increased substantially
Increase in Insurance, almost 3 times, the 3^rd party insurance
Increase in road taxes is reported, in many of the states
Increase of price due to Safety and emission norms is to be met
BS VI norms with effect from 1^st April 2020 will be in practice
Cars and other automobiles need to get modify their manufacturing and allied practices as per BS VI norms

FINANCING ISSUES

Financing issues was one major problem,
80% sale in auto sector through finance
Banks tightened their norms for financing
Both in terms for inventory for dealers and retail sales suffered
Stringent financing norms have been one major factor for drop in numbers of car sales

CONFUSIONS

There is a lot of confusion for transition from BS IV from BS VI vehicles
Fuel Availability for BS VI is expected across country from Mar-Apr 2020 onwards
The confusion was also largely due to Clarity on GST, expected GST Cut, Good Monsoons and Stable Government etc

HEADWINDS ARE NOW TAILWINDS

Many of the things settled, as far as GST, Good Monsoons and Stable Government
Clarifications over BS IV vehicles, which can be registered before Apr 2020 and can have the stipulated life, despite BS VI norms in practice, have worked in favor of Auto Sector
Recently announced Corporate Tax cuts has also worked in favor of the sector

MSIL INITIATIVES TO BOOST SALES

Strong Promotion Schemes by the company
Constant efforts to bring down car ownership/acquisition cost
Talking with Banks to bring down interest rates
Having Special schemes for on-road financing,
Launch of new models XL6 and S-PRESSO, to revive sentiment
Reduced prices in few models reciprocating the Corporate Tax Cuts
Festival season was good, October 2019 (Diwali) sales was great
October 2019 was the month with highest deliveries of car, since Maruti’s inception
This also happened as there has been a pent-up demand since 5-6 months, as the sales numbers were not good

CONFUSION OVER BS IV v/s BS VI STILL CONTINUES

Transition from BS IV to BS VI continues and so continues the confusion
Trying to educate consumers what does it actually mean, to them
How to reply to common queries, has been communicated to the dealers

GASOLINE/PETROL FUELED VEHICLES

Common questions on BS VI and BS VI
Given today, the most common question for BS IV and BS VI is
Can BS VI vehicle use with BS IV petrol?
Or BS IV vehicle use BS VI petrol?
The answer is YES
Gasoline (petrol) engine vehicles are fuel-agnostic

DIESEL VERSION DILEMMA

However, story in diesel fuelled vehicles, is a little different
In BS VI vehicle one cannot use BS IV diesel
Such usage of lower fuel version damages the engine system of BS VI vehicle
But, in BS IV diesel engine vehicle one can use BS VI diesel fuel
So present day BS IV diesel engine vehicles will continue to function even after BS VI norms are in place,
However the usage will remain for the prescribed vehicle lifecycle, as stipulated vide government norms.
So, most of the diesel versions for BS VI shall be launched around Mar 2020

MSIL’s BS VI SHIFT

MSIL has introduced 8 brands which are BS VI compatible
The first one was in Apr 2019 – ALTO and BALENO
One brand was launched in May 2019 - WagonR,
Two brands in Jun 2019 - SWIFT, DZIRE,
One brand in In Jul 2019 - ERTIGA
One brand in in Aug 2019 – XL 6
One brand in Sep 2019 - S-PRESSO
MSIL launched BS VI compatible vehicles one year in advance, across all 8 models
To meet the government stipulated emission norms
MSIL is the only company to launch this ahead of Government deadline

WHY MARUTI WILL NOT LAUNCH BS VI DIESEL VERSION, NOW?

Cost of conversion of BS IV to BS VI in diesel version is very high,
Specifically small size diesel fuelled vehicles.
There are various estimates which increase cost from 70,000 to 150,000 rupees per vehicle, if it needs to be converted from BS IV to BS VI.
The Diesel fueled vehicle prices are already high
By 115,000-125,000 rupees per vehicle against same model of petrol fueled vehicles.
Now with BS VI, the cost goes up significantly, with GST 70,000 rupees cost may end-up to additional price-difference of 250,000 rupees per vehicle.
Price gap today between petrol and diesel is almost at par
April 2012 the price gap between petrol and diesel was 31 rupees per liter.
Today, the price-difference is hardly 3-4 rupee per liter
In some states like Odisha, Goa diesel is more expensive than petrol
While today the running cost of fuel is at par
Why would customer pay 250,000 rupees per vehicle extra for a BS VI diesel version?
Some customers feel that BREZZA and S-CROSS is only in Diesel version, so they thought this brands will disappear
MSIL has clarified to such customers that there will be BS VI petrol fueled engine BREZZA and S-CROSS models, which shall be launched, in first quarter of 2020.
The entire phasing out plan along with transition with vendors and suppliers, from BS IV to BS VI has gone smooth
Equally the vendors will continue to supply the BS IV compatible spares, with the kind of volumes we need to service our customers

THOSE WHO HAVE DIESEL VEHICLES WHAT WILL THEY DO?

There was a huge gap in ownership of Petrol v/s Diesel versions of vehicles in 2012,
In 2011-12 Diesel version sale was 60% v/s petrol version sale was 40%
In 2018-19 Diesel version sale was 38% v/s petrol version sale was 62%
In 2019-20 Diesel version sale is 32% v/s petrol version sale is 68%
At MSIL the same sale ratio for Diesel version is 20% v/s petrol version sale at 80%
Shift from diesel to petrol is very evident
Majority diesel market in 2012 is today majority petrol market
With BS VI norms in place, cost of ownership going up,
Diesel version sale may still dip further
Small diesel cars will not be manufactured

IF DEMAND FOR DIESEL VERSION CONTINUES, THAN WHAT?

Small car owners are quite cost conscious
Premium car owners would not mind the cost dynamics
In lower car segment diesel version may not survive
At MSIL in Hatchback segment diesel version sale is hardly 5-6% of the 20% pie
MSIL will observe demand for Premium Segment and Big Cars, in diesel segment
Will observe, work and (may) introduce BS VI diesel versions, at some point of time
Depending on how market pivots, currently MSIL sees market focused for petrol version
MSIL is confident about smaller diesel versions disappearing or going away
In larger/premium segment, depending on the demand MSIL may take a call accordingly
As BS IV diesel fuelled vehicles can operate and run on BS VI diesel fuel
Petrol version BS VI of BREZZA and S-CROSS will be launched in next quarter
Diesel version of BREZZA and S-CROSS vehicle production continues, presently
Going forward Diesel version for BREZZA and S-CROSS will stop before 1^st Apr 2020

PILED-UP INVENTORIES

Because of slowdown inventories were high with all car manufacturers
Thanks to October MSIL now has very much controlled inventories
However, no auto-player can allow pile-up/build-up on BS IV stock
After 1^st Apr 2020, no manufacturer will be able to sell BS IV vehicles
Maruti Suzuki introduced 8 models of BS VI,
MSIL is almost out of BS IV stock
MSIL is now only selling BS VI stock, as far as the 8 brands go
MSIL’s Inventory levels presently are almost less than 30 days.
MSIL’s inventory had gone upto 45-47 days, but thanks to Oct 2019sales.
As BS IV phases out, MSIL inventory is almost NIL
Present 30 days inventory of MSIL is partly BS IV diesel and BS VI petrol version units

IS THE BS VI SELLING WELL?

BS VI Petrol segment prices are a little bit on an upper side
In diesel segment it is too high
But in petrol segment base price is high by 8,000-10,000 rupees per vehicle
MSIL BS IV stock is almost over
MSIL is the only company which is selling BS VI models
BS VI models are sold well, it has got good acceptance
MSIL sold 300,000+ vehicles from Apr-2019 till Oct-2019
“BS VI models are technologically advanced,” is a customer feedback
BS VI is a preference for those customers who are environment conscious
BS VI is more accepted by customers as it is a technologically advance product and is environment friendly
In Tier-2 and Tier-3 cities also BS VI vehicles are in demand
MSIL is very enthused by the sales figure, in record time.
Going forward MSIL expects to continue the momentum
Baleno had a little high price due to migration from BS IV to BS VI with some more features.
In last 6 months out of top 10 models sold in India, in entire industry, 8 models are of MSIL
S-PRESSO has scaled 7^th position though launched month back
Top 8 model sales also includes ECCO, DZIRE, ERTIGA
MSIL is across all car segments,
MSIL claims passenger cars (Sedan & Hatch, Vans, SUV, PV) market share in range of almost 60%
MSIL’s market-share in CV (commercial vehicles) segment is high
In SUV segment, it has a little less market share

RURAL V/s URBAN SALES

MSIL’s Rural sales had been more than urban sales
MSIL Rural sales is almost 38%
MSIL’s Q1FY20 (Apr-Jun) rural sales decline was similar to urban sales
In last five years rural sales growth has been high than urban sales growth
In FY20 MSIL’s rural and urban de-growth has been same
Poor and unsure mosoons led the de-growth in MSIL’s rural sales
However in Oct 2019, MSIL’s rural sales has shot-up significantly up, since Q2FY20 (Jul-Sep)
MSIL’s Oct 2019 growth of Rural sales I is higher than growth of Urban sales
Good monsoon has driven sentiments towards positive curve in rural sector
MSIL’s Rural sales has grown from 37% to 39% YoY

PHASING OUT BREZZA and S-CROSS PRODUCTION & NON-WORKING DAYS

Before 1^st Apr 2020 MSIL will phase out productions of BREZZA and S-CROSS diesel versions
Conversion confusion over BS-IV to BS-VI landscape
Was one of the reasons for most of the auto-companies observing non-working days
Reason for lower volume were cost of acquisition, financing issues and other confusions
Volumes were adjusted in terms of inventories and production was calibrated accordingly

GREEN FUEL OPTIONS

Gujarat is one of the states where CNG sales is very high, due to CNG distribution network
In Gujarat CNG model sales is good as compared to Mumbai and Delhi
Government of India having announced big scheme for CNG expansion network in India
So MSIL equally has strong expansion plans from 90 districts to 390 districts
MSIL will like to tap the CNG option, following the Gujarat example

HYBRID & ELECTRIC VEHICLES

MSIL is considering infra issues, for plugin or electric vehicles
Range anxiety in terms of charging stations/dock, like it was felt initially in CNG gas network
Price of the product is one prime concern for plugin or electric vehicles
Several factors yet lack clarity, so MSIL has yet not taken-off strongly in Plugin or EV space
Going forward hybrid models - partly electric and partly engine, is a very good option
MSIL is testing WagonR in several climatic conditions and different geographical terrains
After technological evaluation, the marketing plans will be in place, for such products

USED CAR SALES

Used cars or pre-owned car sales has grown
Good business opportunity for dealers, as they have TRUEVALUE network
Exchange penetration of MSIL is almost between 30%
Against every 100 new cars sold by MSIL, the company buybacks 30 used cars
In H1FY20 the pre-owned car sales has grown
Going forward MSIL will increase used car sales
Used cars sales is equally a profitable business model for MSIL dealers
Used car sales growth was 6% in H1, which is less as compared to last year which was 16%

MARKET IN LAST 30 YEARS

In 1991-92 due to 60% increase in exercise duty witnessed degrowth.
In 2001-2002, 2009-10, 2010-11 car sales market was in a low phase
Sales had gone down, there was slight reduction during above periods
Negative growth was not so large, as seen today

VOLUMES UP

Volume levels have shot up drastically, in last 30 years
In 1991-92 MSIL Car sales was 90,000 units per year out of 130,000 sold in the nation
In 2001-02, MSIL sold 6-7 Lakh cars per year
Today, Indian car market has touched sale of 3 million (~30 lakh) cars per year
Today markets is at a very different levels in terms of volumes

MORE HEADROOM TO SELL CARS

Population is increasing in India
Per 1000 cars owed ratio has good scope, upside is very good
MSIL’s longterm outlook is very bullish
Rural sales is good
Per 1,000 the numbers of cars in India is very small, it is 25
In China it is 150 per 1,000
In US it is 600-700 per 1,000
In Japan it is 700+ per 1,000
So, India has lot of more headroom to expand
With economy developing, first time buyers coming in
There are lot of young buyers below 30 years age
Penetration of cars just being 25/1,000
India has great potential for expansion of car market
Keeping in view the current norms and market penetration
Low cost cars, needs a good combination of quality and affordability.
MSIL will hike price for all BS VI version, as applicable due to transition from BS IV

INDIAN CARS & EXPORTS

Combined Indian cars export basked is very close to 1 million units per year mark
Indian Cars are extremely competitive
Quality of Indian Origin Cars is much more acceptable,
Initially there were lots of questions over Indian car quality
With Japanese quality process and production methodologies
MSIL cars are very much acceptable
As the cars came from emerging market like India, initially there were questions
Indian cars acceptability is very good,
After the foreigners used the product and they are happy with it
This is significant from the large percentage of sales distributors of Indian products.
The testimony of acceptance of MSIL cars in terms of quality and price is pretty good.
New Foreign car manufacturers entering Indian market have good numbers
However, it would be too early to speculate anything on new foreign car manufacturers in India

HIRED CAR TRENDS, MATTER OF STUDY

MSIL is studying the pattern of hired car service providers like Ola and Uber
The trend is in vogue in big cities
The patterns are not only for usage of a car,
But ownership pattern of the car needs to be studied
Usage pattern may be different
And equally ownership pattern may differ
Car may be owned, but usage may be low, that is where car hiring services come in picture

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DATELINE GUJARAT / डेटलाइन गुजरात / ડેટલાઈન ગુજરાત

Sunday, November 24, 2019

“Indian Car Market has a lot of headroom" - says Shashank Srivastava

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