Maruti bets small cars will gain from SUV ride

The move comes amid muted demand for hatchbacks, which has led to ballooning inventory and tied-up working capital at small car dealerships, two people aware of the matter said on condition of anonymity. Simultaneously, it has also started streamlining production of small cars, as supply chain challenges, which had hindered production of its feature-rich SUVs, are gradually easing, they added.

However, following a lean period of two-and-a-half years with minimal inventories, with semiconductor shortages restricting supplies, auto dealers are now faced with yet another challenge, having to cope with up to 60 days of stocks at showrooms.

Besides, dealers are also grappling with additional funding requirements as small car manufacturers such as Maruti Suzuki associate specific dealer metrics and goals with the sale of small cars such as the Alto. It is also bundling dispatches of “hot-selling” models, including new SUVs, with hatchbacks that are in low demand, said a Delhi-based dealer.

“We expect the supply-side push to continue and inventories will take three-four months to normalize. Maruti Suzuki, which dominates the small car segment, is pushing sales to protect the market share it is generating from the sale of its new SUVs, and delivering profitability, as its cost structures for small cars are a lot more attractive than its competition,” the dealer added. The carmaker is also keeping a close watch on inventory levels and offering schemes to support dealers having 45 days-plus inventories, “For smaller models such as the Celerio, S-Presso and K-10, Maruti has an interest support scheme as dealers have high inventory of those models. Our wholesale target has a small linkage to small cars. Our funding requirement has started going up also because of the new NEXA models,” a Mumbai-based dealer said.

“It is correct that small car stocks are higher than other cars right now. The stress is more for some models such as Celerio, Ignis, S-Presso and Alto. We are not seeing very high stocks for other hatchbacks such as Baleno, WagonR, and Swift. With semiconductor component supply issues easing, we started regulating production of vehicles according to the demand,” Shashank Srivastava, senior executive director, Maruti Suzuki, said.

“I anticipate, therefore, that inventory levels of small cars will reduce to normal levels in the near future. I must emphasize that hatchbacks remain almost one-third of the passenger vehicle industry, and are, therefore, important for us.”

According to Srivastava, high inventory levels of certain models and the substantial order backlog for other models are results of the production-demand mismatch following the supply chain constraints witnessed two years ago.

“Declining affordability and increasing availability of small cars led to building up of inventories to almost 50 days, whereas there was a waiting period of 12 months as we weren’t able to produce our new models,” Srivastava added.

In comparison, dealership inventories for Hyundai Motor India Ltd, which sells the Grand i20 and i20 Nios in the hatchback segment, is at 20-25 days, said the company’s chief operating officer Tarun Garg.

Updated: 14 Sep 2023, 11:29 PM IST