Cost of acquisition will continue to remain high: Maruti Suzuki Executive Director

In an interview with BusinessLine , Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India Ltd, spoke about the reasons for the degrowth in the automobile industry this year, key learnings for the industry, the outlook for 2020 and the factors that can revive growth. Excerpts:

The year 2019 was quite different from the 5-6 years before it. In the previous 5-6 years, we had seen very good growth. In 2019 we had a degrowth, and it was a pretty large degrowth.

The economy has been slowing down in the last few quarters, as the data suggests. Second, the cost of acquisition went up substantially because of the emission (BS-VI emission norms) and the new safety norms. Then came the non-banking finance companies (NBFC) issue (where) we saw a tightening of the norms both on inventory funding as well as on the retail finance. There was also an increase in the third party insurance and the road tax was increased across many States. There was also lot of uncertainty this year.

The first was because of the elections. Second, the beginning of monsoon was not good but we ended up with a little positive — plus four per cent — monsoon. The third uncertainty was the Goods and Services Tax (GST rate). There was news that the government was considering a reduction in GST and buyers kept postponing the decision to purchase, thinking that maybe the GST will be reduced.

All these took a toll on the industry volumes.

I think the cost of acquisition will continue to remain high.

Second, on the banking front there could be some reduction in interest rates...My expectation is that the interest rates will go down or remain stable going forward.

Third, one defining factor for 2019 was the very high stock levels which dealers carried...I think that pressure maybe a little less because now the inventory is very much under control at most dealerships.

We are a little more optimistic because the transition to BS-6 would be completed by March end. So there will be no more uncertainty.

There could be a bounce back in rural sale because of the good monsoon. I think the kharif crop would also be good and therefore, that should bring the rural economy in a better shape than in 2019.

It seems to be a trend. Going forward, that is the talk of the industry. But there is a lot of uncertainty, which I think will continue next year as well, with regard to the battery technology, the costs involved, the range and the charging infrastructure.

There were a lot of measures which did help. For example, the clarification on registration being applicable for vehicles which are BS-4 registered (the clarification that BS-4 vehicles can be used throughout the registration period), helped clear doubts that consumers may have had. Corporate tax reduction was sort of a relief.The government said you can get a higher depreciation (the doubling of depreciation rate to 30 per cent for vehicles bought until March 31, 2020). These things were positive.

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