For over 15 days in a month, Maruti Suzuki’s COO for Marketing and Sales, Mayank Pareek, is on the road. He travels across the length and breadth of the country to get the pulse of the market.
These days, he has an additional task at hand -- to spot potential clients, who are not impacted by the economic slowdown and sell Maruti cars to them.
In the last few months, Pareek has been quite successful in this endeavour. He has managed to find what he calls ‘niche clients’ in a market where auto sales have slowed down for eight straight quarters. These niche clients range from leather wholesalers and retailers in Kanpur to priests in the temple city of Nashik. The latest on Pareek’s list are owners of medium-sized hotels and restaurants on highways. They do brisk business irrespective of economic cycles, just like the priests of Nashik. Maruti sends out its dealers to these potential customers to negotiate deals.
Some other interesting niche clients include groundnut and spices farmers in Gujarat, textile SMEs of Ludhiana and owners of cold storage units in Bihar, besides potters and painters.
“Our dealer partners are currently exploring sales opportunities with almost 300 niche segments. In the first quarter of FY14, niche segments contributed 6 per cent to our sales (of Rs 9,995 crore),” Pareek told Business Line .
Rural India push
While Maruti is going all out to keep its cash registers ringing, General Motors India has decided to cut production to remain in tune with the current slowing demand. “We are reducing the days of production depending on the demand, like working for five days in the Talegaon plant instead of six days,” said GM India Vice-President P. Balendran. The company has cut 15 per cent production in the last six months.
Amid this gloom, the market that seems to have come to the rescue of auto makers is rural India. Since Tier-III cities, small towns and villages are less impacted by economic cycles, auto makers are going all out to tap customers in these geographies during this time of falling demand.
Hyundai plans to increase the number of sales outlets in Tier-III cities from 270 now to 350 by the year-end. Last year, about 17 per cent of Hyundai’s sales came from rural areas and small towns. The company expects this figure to top 20% by 2014.
“We have customised schemes for farmers, traders and Panchayat members. Hyundai has also tied up with Gramin banks to facilitate easier finance options,” says Rakesh Srivastava, Senior Vice-President, Sales and Marketing, Hyundai India.
COST CUTS
For Maruti, 30 per cent of overall sales last fiscal came from rural India. “Our resident dealer sales executives continue to push for sales in rural India. A selective and localised approach has helped us in today’s tough times,” says Pareek.
While expanding the customer base to boost sales is one part of beating the slowdown, the other comprises cutting costs. Maruti sent 400 temporary workers at its Manesar plant on leave in July, while Mahindra & Mahindra axed 500 temporary jobs at its Chakan plant near Pune. Fresh hiring has been frozen.
Declining sales have led to piling up of inventory at dealers’ levels. Earlier this year, Tata Motors and Toyota India were forced to cut production of certain models to tide over excessive dealer inventory at that time.
Hero MotoCorp, the country’s largest two-wheeler maker, has not cut production at any of the plants. It has, however, set up a 25-member team comprising employees from various departments to look at ways to reduce costs, including marketing spends, employee spends and logistics costs. “That programme has just been initiated in the first week of April and will continue for about eight to 12 quarters. We will start seeing the benefits in a few quarters,” says Ravi Sud, Senior Vice-President and CFO, Hero MotoCorp.
STILL NOT ENOUGH
Despite these efforts by auto makers, sales are refusing to look up. Passenger car sales were down nine per cent year-on-year to 1,39,632 units in June, according to the Society of Indian Automobile Manufacturers (SIAM). Motorcycle sales during the month also declined 9.16 per cent to 7,99,139 units over the year-ago period.
The industry is now clamouring for a stimulus package to revive sales. Jnaneswar Sen, Senior Vice-President, Sales & Marketing, Honda Cars, believes there is a dire need for Government intervention. “Cars are among the most taxed in the country, while the increase in levies by the State governments has added to the woes. I think the industry should ask the Government to step in,” he says.
Back in 2008, when the global slowdown was threatening to derail the Indian automotive sector, the Finance Ministry was quick to lower excise duties on small cars. The move paid off and sales got back on track.
But that formula is unlikely to be replicated now. The Government’s fiscal deficit is already high and an excise duty cut is hardly a viable option. During April and May, the fiscal deficit had already reached Rs 1.81-lakh crore, a third of the Rs 5.42-lakh crore target for FY14.
Besides, the rising petrol prices and high interest rates are also playing spoilsport. “This has added to the uncertainty and led to lower enquiry levels in final purchase by customers,” Hyundai’s Srivastava adds.
For now, things don’t seem to be looking up for the country’s auto-makers. Ratings agency India Ratings has said that car sales are unlikely to show any meaningful recovery in the next six to 12 months. The current capacity utilisation rate for the industry is 63-68 per cent. “We believe average capacity utilisation levels may decline despite a 10 per cent volume growth,” it said in its mid-year outlook on the auto sector. However, higher-than-expected agricultural output and an improvement in export volumes could provide a cushion to the auto-makers. Till that happens, bagging more niche clients and keeping a close tab on costs should help keep the industry’s fortunes steady.
rashmi.p@thehindu.co.in
ronendrasingh.s@thehindu.co.in
(With inputs from Rajesh Kurup in Mumbai and Swetha Kannan in Chennai)