Maruti Suzuki India chairman on challenges, price hike after BS-VI shift

Amid the nationwide lockdown to check the Covid-19 spread, India will quietly transition to BS-VI, the most stringent emission standard for the automobile industry anywhere in the world. R C Bhargava, chairman of Maurti Suzuki India, speaks to Arindam Majumder about the learning, challenges, and scope of a price hike in a bruised economy. Edited excerpts:

Do you think that BS-VI deadline should have been extended because of the lockdown?

I am one of the interested parties in this. So my view is not an objective one. But the fact is we had completed the transformation to BS-VI by about the beginning of February and manufacturing of BS-IV had ceased. Till this lockdown started, we had disposed of a bulk of BS-IV vehicles. There were some vehicles, which had been paid for but which had to be registered and delivered. The number of unsold vehicles was very small, maybe 40-50 for Maruti. We had expected that before the lockdown in 10 days or less, we would be able to sell. We were hoping that because there were some districts where there was no lockdown we will be able to sell. Now, I suppose we will be left with a certain number of vehicles that are not even registered.

How as India’s largest car manufacturer did you undergo the transformation?

We had to do the maximum amount of work because we had the maximum number of models to be changed. It was tough. I think every firm felt that the time the government gave was very tight and that it may not be possible to get all the engineering work done. We had suggested there could be two stages of this — one relating to new model and another for existing ones. That was not accepted. So, we put all the resources from us and Suzuki in Japan into the task. We were able to complete the task of handling some 16 or 18 models well before the deadline.

Will it be possible for you to increase the prices in the current situation?

Even before the Covid-19 problem, there was a decline in sales this year instead of a projected double digit growth. Besides the increase in price due to BS-VI, some states had also increased tax. So, a customer had to pay much higher prices to buy cars than he was doing earlier. Availability of consumer finance became much more disconcerting. The increase in acquisition cost in India is by far the highest, compared to developed countries, whether you take Japan or Korea. Value-added tax in Europe is 19 per cent but taxation for big cars in India is around 60 per cent with per capita income a fraction of what they are in Europe. How do you expect sales to grow at high rates?

Do you think car companies absorb the cost because of the current market condition?

Car companies don’t have much leeway in this. No business can afford to sell below costs. No business can survive without making profit. Without profits, you don’t have the money for maintenance, modernisation, engineering, or improvisation.

Is the ecosystem ready for the transition?

The oil marketing companies are prepared with the fuel and that is all that is needed. I would have thought that recognising the higher cost of BS-VI, state governments could have not raised the road tax or help in lowering GST to offset the cost of BS-VI.