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Business trends

Maruti Suzuki sales continue to fall as India car demand slows ahead of elections

Automaker cuts production to amid inventory pileup

Total sales including exports fell 1.6% to 158,076 units last month, the company said in a statement on Monday.   © Reuters

MUMBAI (NewsRise) -- Maruti Suzuki India's sales continued to decline as demand for cars slowed further in March, piling up inventory and forcing the nation's largest carmaker to cut production.

Still, the Suzuki Motor unit expects demand to pick up after India's general elections due later this month and the next amid hopes of consumer confidence returning in Asia's third-largest economy.

Total sales including exports fell 1.6% to 158,076 units last month, the company said in a statement on Monday. Domestic sales of Maruti's cars, minivans, and sport-utility vehicles fell 1.5% to 145,031 units. Export declined almost 13% to 10,463 units.

The company's overall sales in the last fiscal year ended 31 March grew 4.7%.

Passenger vehicle sales in India have been tottering since July, reflecting a slowdown in the overall economy, as fuel prices rose and farm incomes dropped. The nation's gross domestic product grew at the slowest pace in five quarters during the October-December period. A credit slowdown in the aftermath of a near meltdown at a major non-banking financial company in October further damped automobile demand.

"As manufacturers, we should be flexible in our plans to be able to adjust to what customer behaviour comes up in the next few months," Maruti Chairman R.C. Bhargava told CNBC TV18. "We have adjusted the production in March, so that we don't end up with a large inventory."

Last month, media reports said the carmaker cut its March production target by nearly 27%. Bhargava said a lot of regulatory changes in the past few months and those imminent ones relating to safety and emissions are prompting consumers to hold back purchases. Analysts expect at least 25% of Maruti's portfolio of cars to witness a 5% price increase due to India's new safety standards.

According to Nomura, inventories of passenger vehicle stood at 60 days at the end of February. The brokerage expects demand recovery to be back-ended in the second half of this fiscal year as economic growth recovers, election uncertainty goes behind, and pre-buying sets in as prices rise sharply ahead of a new regulatory change due in April 2020.

"Evidence of the past two general elections shows that in the year before the elections, sales slow down considerably," Maruti's Bhargava said. "The moment the elections are over, the sales go up."

Bhargava said he expects sales to pick up this fiscal year as car penetration in India is not very high.

"In all these years, I've never seen two or three years of successive decline in sales."

Smaller rival Mahindra & Mahindra reported a 1% rise in total March sales at 62,952 units. The company witnessed a 5% growth in sales of its SUVs on the back of new launches.

Shares of Maruti gained 2.6%, while Mahindra lost 1.7% in Mumbai trading. The benchmark Sensex index closed 0.5% higher.

--Dhanya Ann Thoppil

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