By Pritish Raj
Auto sales are at their lowest levels in nearly two decades and dealers are saddled with huge inventory. To push sales in such an environment and clear the network, manufacturers are offering huge discounts on several models to drive home the message that if one plans to purchase a vehicle, now is the best time.
To be sure, if consumers are waiting to see whether the government cuts GST on automobile products — as the industry is demanding — to fuel demand, the prices aren’t going to be much different than what one’s getting by way of discounts. Companies FE spoke to said in case of any GST cut, the reduction in prices will be passed onto the consumers but the discounts will be curtailed, so net-net, the consumers won’t benefit much if they buy now at discounts being offered. Yes, a GST cut would improve the realisations for the manufacturers which will not be the case in offering huge discounts.
The companies and dealers are in a way pushed against the wall currently. They need to exhaust the inventory, as six months from now BS-VI emission norms would kick in.
As a result, after March 31, 2020, manufacturers would not be able to the sell the current BS-IV compliant vehicles, which would mean that the stocks, if left unsold, will become scrap.
Dealer checks shows that discounts on cars by Maruti Suzuki, Hyundai and Honda Cars have touched an all time high curently.
For instance, Maruti Suzuki is offering an upfront cash discount of Rs 50,000 on its popular model Dzire. Taking into account other benefits such as exchange bonus, free insurance and accessories, the benefits go up to Rs 70,000. The compact sedan, petrol variants of which comes with a starting price of Rs 5.9 lakh (ex-showroom), is now available at several dealerships with an ex-showroom price of Rs 5.30 lakh. Discounts on the diesel variants are higher by around Rs 20,000 compared with their petrol counterparts.
The diesel variant of Maruti’s compact hatchback Swift, one of the highest selling model, is being sold at a discount of around Rs 43,000 with total benefits going up to Rs 68,000. Swift is now available at a starting price of Rs 6.5 lakh (ex-showroom), which before discount had a starting price of Rs 7 lakh. Other models such as Baleno and Vitara Brezza are also being sold at a discounts in the range of Rs 40,000-Rs 60,000.
Typically, a dealer operates on a margin of 3-6%. By sacrificing part of their margins, dealers are offering discounts, in addition to that given by the OEMs, resulting in increase in the net discounted amount.
Nikunj Sanghi, director, international affairs at Federation of Automobile Dealers Association (Fada), said not only the discounts by OEMs are at record high levels, the dealers are also letting go of margins like never before. “Most of the dealers are foregoing their full margins either because they are saddled with excess stock or are in a position where they need to immediately pay back the banks,” Sanghi, who also runs a dealership of Mahindra & Mahindra, said.
Hyundai is offering cash benefits of about Rs 60,000 in its hatchback i10 and compact sedan Xcent, in addition to other benefits of up to `35,000. After the discount, the base trims of the vehicles are available at `4.35 lakh and `5.15 lakh (ex-showroom). The company is also offering highest discount of Rs 1.2 lakh on its executive sedan Elantra.
Dealers of Honda Cars India, which sells popular models like Amaze and City, are offering cash discounts of upto Rs 40,000 on the two models. After other sops like extended warranty and free insurance, among others, the total discounts account for over Rs 60,000.
A company executive agreed to the fact saying the discounts are at all-time high. “Most manufacturers have optimised their production plan for the coming months, so higher discounts than this is unlikely,” the executive told FE.
Car sales, which have remained subdued since July 2018, fell to new low of 31% y-o-y in July 2019, witnessing its sharpest decline in nearly 19 years, data from Society of Indian Automobile Association (Siam) showed. Poor retail sales due to weak consumer demand has left dealers saddled with high inventory, prompting automakers to liquidate stocks at higher discounts.
Analysts said higher inventory levels are likely to stay the same in the near term as retails are not picking up due to lack of easy credit availability. “Our industry checks indicate that retails have also declined and inventory levels might remain elevated,” analysts at Nomura said, adding that the recovery is likely to be slower than the initial expectations.