Why Maruti favours affordable cars over entry into luxury segment

Selling high-priced and small volume products did not fit into the company's strategy, said MSI Chairman R C Bhargava

With Maruti Suzuki commanding 52.54 per cent market share of mass passenger vehicles, some of its shareholders want the company to think bigger and enter the luxury segment, but it is happy to concentrate on its strength.

During the 37th Annual General Meeting of the company held on Thursday, one of the shareholders pointed out to the management that it was time for Maruti Suzuki to consider competing with the likes of Mercedes-Benz, BMW and Audi.

The logic behind the suggestion was that MSI already has over 50 per cent market share in the mass segment and it was time to move up the value chain.

Responding to the suggestion, MSI Chairman R C Bhargava said the company's effort would be to provide features that are found in luxury cars in the company's affordable products.

"Today we have the new Ciaz, which has a lot of the features that you find in the 'premium sector' cars and at a much lower cost," he said.

Bhargava further said, "Please remember that India is a country where people are very price sensitive (and) affordability is a factor."

He also said that selling high-priced and small volume products did not fit into the company's strategy.

"Maruti's strength is bulk manufacturing in large scale, Bhargava said, adding, "and small volume sales, what some of the premium manufacturers do, just does not fit into our business model".

He said, however, it doesn't mean that the company's customers would be deprived of the premium features.

"We will keep improving our cars and we will keep improving what value we give to our customer but this decision of what cars should we make, I request you to kindly let the board decide," Bhargava said.

In the April-June period of the ongoing financial year, MSI's market share in passenger vehicles market increased to 52.54 per cent from 50.43 per cent in the year-ago period.

The company sold 4,58,967 units of PVs in the April-June period as against 3,67,386 units in the year-ago period, a growth of 24.93 per cent.

For the total industry, domestic PV sales in the first quarter of the current financial year grew 19.91 per cent to 8,73,501 units as against 7,28,483 units.

Addressing a concern over "stagnating margins" raised by another shareholder, Bhargava said operating margins were not entirely in the hands of the company as many extraneous factors such as foreign exchange rate commodity prices and global trade issues also played a role.

Despite that, he said MSI's operating margins "were higher than any other automobile company in India" and among the best in the world.

Earlier, addressing the shareholders, Bhargava said the potential trade war between the USA and China could lead to other countries also being drawn into this unfortunate course of events.

"Oil prices, and the Iran problem, create a great deal of uncertainty about energy costs this year. Both these events could lead to offsetting some of the benefits of the positive factors," he added.

Bhargava pointed out healthy growth of the economy, good monsoon and tax compliance under GST enabling businessmen larger investments for modernisation and growth of their companies as major positive factors.