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Automobiles

Maruti Suzuki reports first-ever quarterly loss on Indian lockdown

South Asian nation's vehicle sales plunge 80% as pandemic stings

A Maruti Suzuki showroom in New Delhi. The pandemic has throttled production and sales.   © Reuters

TOKYO -- India's leading automaker Maruti Suzuki on Wednesday posted a 2.67 billion rupee ($35.7 million) net loss for the quarter ended in June, its first red ink since going public in 2003.

The dubious milestone owes entirely to the novel coronavirus, which forced India to impose a two-month lockdown this spring. Quarterly sales plunged 72% on the year to 54.29 billion rupees.

Maruti Suzuki, which controls 50% of India's passenger vehicle market, posted a net profit of 13.76 billion rupees a year earlier. The slump at the automaker, which is majority owned by Japan's Suzuki Motor, will likely trickle down to dealerships and suppliers and deal a blow to the domestic steel and materials industry.

The plight of the country's top automaker reflects the grim economic conditions on the ground. The Indian government enacted an urban shutdown on March 25 that temporarily shuttered factories and stores. Businesses involved in pharmaceuticals, foods and other essential industries were exempted.

As a result, the Indian economy grew only 3.1% in the first calendar quarter, the slowest reading in roughly eight years. Some estimates show a 20% contraction for the second quarter.  

According to data from the Center for Monitoring Indian Economy, India's unemployment rate rose to 23% in April and May, much higher than the pre-lockdown rate of between 7% and 8%.

The lockdown, which lasted until late May, delivered a blow to Maruti Suzuki's production and domestic sales for the April-May period. For the first financial quarter through June, the company sold only about 76,000 vehicles, a huge drop from roughly 400,000 units in the year-earlier period.

"Production in the whole quarter was equivalent to just about two weeks' of regular working," Maruti Suzuki said in a statement. The company's stock price closed down more than 1% on Wednesday.

Overall, just over 180,000 vehicles were delivered across the country in April-June, according to the Society of Indian Automobile Manufacturers, down 80% from a year earlier. Domestic rivals Tata Motors and Mahindra & Mahindra, which have yet to turn in quarterly results, will inevitably report soured earnings.

The bleak business environment in the auto industry is expected to remain for the foreseeable future. The job market has suffered under the lockdown, and workers have absorbed pay cuts. It is difficult to predict when demand for automobiles will recover.

Bottlenecks remain on the production front, whether it be in procuring auto parts or securing labor.

Maruti expects demand to increase eventually, but notes that owners are not trading in their vehicles as much as before.

"Replacement buying is coming down because we believe consumers will hold on a little longer than what they have been doing in the past, before they upgrade to bigger or better vehicles," Shashank Shrivastava, Maruti Suzuki's executive director of marketing and sales, said on a conference call Wednesday. "So I think you will see both ... demand going high on first-time buyers and at the same time replacement buying coming down."

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