Maruti price cut not big enough to tempt buyers

Analysts believe that manufacturers need to give higher discounts to bring the inventory under control, which is still higher than normal, as the demand is weak in the first phase of the festive season.

By:Published: September 26, 2019 9:53:00 AM
Maruti Suzuki reduces rate on selected models, maruti, maruti suzuki vehicles, मारुति सुजुकी ने अपने सेलेक्टेड मॉडल्स की कीमतें कम कर दी, maruti suzuki deewali offerRepresentative Image

The price cut taken by Maruti Suzuki on almost all entry-level models and the entire diesel portfolio, while shaving off about one percentage point from its revenues, may not be enough to tempt buyers. The price cut of `5,000 on a vehicle will make a small difference for bigger cars like Brezza and S-Cross. Even smaller model like Alto that costs `2.94 lakh will be priced at `2.89 lakh after the cut, which is no big deal.

Analysts believe that manufacturers need to give higher discounts to bring the inventory under control, which is still higher than normal, as the demand is weak in the first phase of the festive season. “OEMs will have to discount aggressively and reduce dispatches to bring inventory under control, with implications for H2FY20 earnings. OEMs could choose to pass the corporate tax cut benefit to customers, but this would imply only a 1-2% additional discount,” analysts at Jefferies noted.

A diesel variant of Baleno base model would now cost around `6.45 lakh, following the price cut, over and above `25,000 cash discount that is being offered. Models like Swift diesel and Dzire diesel would more or less cost the same as discounts on them are almost similar. Apart from reducing price on all its diesel products including Vitara Brezza and S-Cross, Maruti Suzuki has cut prices of its entry-level models like the Alto 800, Alto K10 Celerio and Ignis.

While it is expected that other manufacturers will also cut prices marginally to pent up demand and remain competitive, Hyundai Motor India, Tata Motors and Toyota denied any such move immediately, saying price cuts are not on the cards, so far.

The price cut by Maruti came as a surprise as the company’s chairman RC Bhargava on Monday said there is little scope to pass on the benefit of corporate tax cuts and since the amount of money available from tax cuts is not very substantial, it will not matter to the consumers even if it is passed on.

“Discounts offered today on cars have never been offered before, they are at the highest levels. There is little scope to cut prices further as the effective tax savings will not be much,” Bhargava had told FE.

The reduction is on the ex-showroom price of the vehicles and is over and above the promotional offers given by the company, which ranges anywhere between `40,000 to `1 lakh. The move is a part of the company’s strategy to boost consumer demand during the upcoming Navratri and Diwali season.

The new prices will be applicable from September 25 across the country, the country’s largest car maker said in a statement, adding that the price reduction will bring down the cost of acquisition especially for the entry-level customers. “The announcement around the festive season will help boost customer sentiment and revive the market to create demand,” Maruti said.

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