The Tuesday Interview | Auto industry is not doing that particularly well: Maruti Suzuki chairman R C Bhargava

Industry veteran says salaries need to rise for small car sales to revive.

The growth in the Indian automotive industry is not that remarkable in spite of October being the best ever month for four-wheeler sales, Maruti Suzuki chairman RC Bhargava told DH. This is because sales in the affordable segment have slowed down. In an extensive interview with Lavpreet Kaur and Arup Roychoudhury at his Noida residence, Bhargava said that the industry cannot expect growth of 10% unless the small car segment revives, and for that the incomes of the salaried classes have to rise. The veteran, who has been at Maruti since its inception in 1981, talks about the company’s electric vehicle plans, capacity expansion, rural sales, and why the Maruti 800 still remains his favourite car. 

Please share with us your reading of the overall auto industry and Maruti Suzuki in particular.

This year is going to be a better year than last year. Till last year, though we were over Covid, the semiconductor chip shortage affected the working of the company which continued till the first quarter of this year. Now we are over it. So gradually things have improved. The market for cars has changed in the sense that the affordability factor continues to be significantly important for the lower end of the market but there is a decline in that segment. Growth is largely driven by SUVs and MUVs. But overall, the industry growth of 5% on a base which itself was depressed, is not all that remarkable. The industry is not doing particularly well. 

But was October not the “highest ever” month for the industry in terms of sales?

India is a growing market. So, by definition, everything will be the highest ever.  But the growth is slow and if the lower end of the market - the entry-level cars or lower-priced cars which people moving up from two-wheelers and second-hand cars buy - does not grow then I do not believe we can have any growth in the car segment. It might take 2-3 years for the affordability factor to return when people’s incomes grow and car prices do not grow equally fast. 

But long-term growth cannot be led by SUVs. Where is the base of customers who will switch to the Rs 15-20 lakh range of cars? There has to be stepwise growth - you can’t suddenly jump from a two-wheeler to a Rs 15 lakh car. So we cannot get a 10% growth unless all segments grow. 

Two-wheeler and small car sales have gone down. Does that mean the rural economy hasn’t picked up? 

No, I don't think so. While the cost of regulations like BS6 (Bharat Stage Emission Standards 6) and others for safety, is roughly the same for all cars, the small car sales declined as their price increase was double that of bigger cars - which became significant for people who do not have leeway in their budgets. So the buyer at the lower end of the market is hit by a double whammy with no margins and a greater increase in prices as compared to the one in the upper end who can absorb the extra cost but saw only a lesser increase. 

How do you then see rural demand this year? And how do you expect it to be going forward?

Rural demand in the car segment has not depressed. The rural growth is slightly higher than urban. About 44% of our total sales come from the rural area. Going ahead, I think the bulk of the growth will continue in the rural areas.

With most automakers now focussing on SUVs, do you see the small car segment reviving anytime soon? What are you doing in this direction? 

A small car buyer would love to buy SUVs. The question is how? He has to buy a car that meets the minimum requirements and is produced at minimum cost. To the extent we can, we will keep the cost down but there’s a limit beyond which it is not possible as we have to meet all the standards. There are still people buying small cars though volumes have come down substantially. We have to wait till more of them see a rise in their incomes, for this segment to revive. 

Take us through your capacity expansion plans. How do you see product expansion going forward?

We have today a capacity of 2.2 million cars. At our Manesar plant, we plan to build another 1,00,000 cars early in 2024. We are also expecting some extra capacity from the tie-up with Toyota. By 2031, we expect to grow from the 17 models which we have today to 28 models, of which six will be electric vehicles.

What is your outlook on the EV market, which you are set to enter soon?

Our projection is that by 2031, 15-20% of our sales will be electric. We are a little bit conservative in that area because we have alternatives like hybrid technology which most other car makers don't have. We also have the biggest market share in CNG (30%) and we are now moving very definitely into biofuels while hydrogen is also a focus area in the long term. So with different options of fuels available, we will achieve both carbon reduction as well as affordability of the suitable vehicles for that class of customer.

As far as EVs are concerned, one pain point for most consumers today is the price. Is that the only concern though? 

The biggest factor in EVs which nobody really takes serious notice of is that they consume electricity. Where does that electricity come from? In India’s case, the source is thermal and we are continuing to increase the production of coal and in fact importing more coal for the power sector. How is this really reducing the carbon footprint? 

I do believe our economy is going to accelerate from 6 to 8-9% in the next 3 years. The faster the economy grows, the harder it will be to reduce the dependence on coal. So it's a trade-off 

Is there any one car in your past and present lineup, which you were more attached to?

The model that started Maruti and built the company, nothing can compare to that - Maruti 800 it is. It made Maruti a generic word for a car. If you look at the older generation of people today, all of them started their driving with an 800.