Maruti Suzuki - Leader in Passenger Vehicles

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I have my doubts on Maruti (or rather Suzuki) as a long term player for a couple of reasons. My reasons are more subjective and not based on financial numbers which have so far not been their biggest problem.

  1. The diminishing number of people world-wide who are interested in purchasing a car; much less pay for the upkeep and maintenance of the car. There are a few wonderful studies where millennial’s are less interested in buying cars. A ride sharing solution is the preferred mode of transport. In fact in most of continental Europe the public transport is so good, you rarely need anything else. Maruti’s biggest customer by far is India. Most Indian cities are crowded and have an extremely high density of people. A combination of ride sharing and hopefully better public transportation infrastructure will eat into their profits.

  2. Renewable Technology - Maruti is lagging in that department, far behind the Koreans and the Chinese. For those who think making an engine is not difficult, Maruti for nearly the entirety of their time in India so far were dependent on the FIAT sourced Multijet 1.3 diesel engine (for diesels). Same was the case with the Tata’s though they are moving away. So it will take time and effort to develop an electric or other renewable technology engine.
    Note: Mahindra has the most experience and seems to the best bet among the Indian players as far as renewable technology is concerned.

  3. Quality - Maruti is a maker of very poor quality cars and for a long time their only claim to fame was mileage and the fact that we as Indians are rather risk-averse and hence to stick with only known brand of manufacturers. So, once you start moving beyond the 10L point and than the 15L point there are very few Maruti’s that get sold. My hunch is that once the per capita income increases of our country as a whole, the ones who purchase would be less inclined to purchase Maruti’s. In the current scenario as well, Maruti is not top of the mind once you start looking at above 15L cars. About the importance given to safe cars, the less said the better. Most of the cars are flimsily built and would not satisfy any known global quality checks.

All of these are structural issues and would start biting at some point in time and might have an impact in the profitability of the company.

Note: These are my own viewpoints though if anyone is interested in a few of the studies I talked about I can share the links.

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Even in the US, it is difficult to find Uber and Lyft in many small cities. It will take many many years for Uber to enter every km of India. Until then, we need to own cars. Rural buying power has increased and 45% of sales was from rural India and it is growing faster than urban (forgot the %).

We have been hoping for decades. Indian government, irrespective of the political party, has not done enough due to various bottlenecks. If our public transportation becomes equal to Singapore in around 25 years, I would be amazed. However for the next decade, I don’t see this as a threat.

Clearly shows that making engine or battery is not the most vital variable in a complex equation of selling cars. Maruti can either manufacture or buy from 3rd party or collaborate with Toyota to keep the cost of battery down. Selling car is more than just engines and batteries. If it was engines, Fiat and VW would be on the top seller list.

In my opinion, they have purchased Reva and has not utilized the first mover advantage yet. Being too early does not guarantee success. Neither the E20 nor the Verito have been successful in retail market. Of course there is no market now. When there is market, they have no advantages over Toyota/Suzuki.

This statement is baseless. There are many cars from Maruti with 4 star NCAP. Maruti makes car as per consumer demand. If you want a safe car, Maruti can make one. Of course if Indians prefer other attributes over safety, Maruti will satisfy it. Nexa cars have special sheet metal and safety guarantee. You can read about it and also compare it with NCAP results.

Nexa was born to make inroad in to 10 lakh plus segment. When Indians can afford it, Maruti will have an upgrade. In 2015, we never anticipated 10k sales of Baleno and 4k sales of Ciaz. If market is ready, we may see Vitara join this Nexa club with a 7 seater SUV. XL6 could sell 5k units or more in the coming months. Let’s wait and watch.

Please read the NCAP results. They have satisfied and got a 4 star rating for Brezza. Remember that other cars from competition are no better. This will get better over time and one must not look at sheet metal thickness to judge quality. You can see Brezza at 4 star while Scorpio is 0 star.
http://www.globalncap.org/results/

The folks who are lower middle class are much higher in number. If they upgrade from a bike, they would buy something below 5 or 6 lakhs. If you feel per capita income will increase, then Maruti would benefit more as the lower side of pyramid is larger than the top.

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Maruti is one of the top car company in India. Will remain so for a long time. It’s now a household name. Cars sold by Nexa gives a delightful customer experience too, I have bought two cars from there. Ciaz and Baleno.

My doubt is on the aggressive Electronic Vehicle movement from the Government. Though it’s a good thing foe future. But then car makers will have to adjust with them accordingly.

Has anyone studied or understood how this transition phase will turn out? There can also be a chance where other car manufacturers have an edge over Maruti, in such a case, how should an investor look at the company?

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I think All over the world slump in auto sales is partially attributed toward eEV’S. As customers before making large investment want to wait and watch and don’t want to get stuck in gas vehicles. Someone wanting to replace a two wheeler in India would want to wait for 3 more years and then buy a EV possibly. And someone in US would do that same for car. Demand of EVs should rise exponentially from here and ICE automakers will be in denial until this happens. India govt gains a lot from transition to EV in terms current account deficit , currency , energy security, manufacturing , jobs etc they will make sure this happens at a rapid pace.

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Completely agree with most of the points brought out by you.
Thanks…keep posting.

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One -ve in Maruti is lack of upgrade path for the existing customers. Their most expensive car is S Cross. (They sold 654 S cross in July. In fact it never did well. They even discontinued the 1.6 liter diesel.). Despite being their most premium offering, it doesn’t have a petrol, doesn’t have an automatic. Even the engine is 1.3 liter diesel.
On the other hand, Hyundai portfolio has starting from Santro all the way to Tucson. ( In fact they had Santa Fe which I consider one of most competent cars)

Off topic: The other day I was in a Kia showroom to check out Keltos for a friend. It looked like a fish market. This despite the auto slowdown.

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How many Tuscon did they sell? 49.

So by your argument, Maruti top model sold 600 while Hyundai sold only 49. That does not mean anything. When you go higher, sales may not be much while margins may be more. S cross used to sell 2k units consistently and is not a failure at all. But if you use Maruti standards, it is a failure as MSIL likes to have numbers above 4k.

Cross overs are never successful in India. Maruti has still managed to sell 2k units while competition sells single digit or double digit numbers.

On your question about upgrades, Maruti customers are middle class who wants no frills car. This section of society buys Hyundai or Maruti. They cannot afford above 12 lakhs. Ciaz, S cross, Ertiga, XL6 are trying to stay at the edge and offers upgrades by way of variants. Someone who can afford a LXI is pushed to a VXI and someone who can get a VXI is pushed to ZXI, and so forth. Beyond 14 lakhs (ciaz, Ertiga, scross), it may be difficult to get huge numbers. D segment cars don’t sell much (The best selling D segment car is Innova at 6k units but it is declining too. Other D segment cars sell 3 digit numbers or worse). However when Indian middle class can afford it, Maruti can release it from their portfolio or borrow it from Toyota.

S cross is not the most premium product. There is Ciaz, Ertiga and XL6 at similar price points. Crossovers are not successful in India and since it did not sell as expected, it would be not wise to keep giving multiple engine and transmission options. It may get Petrol early next year or even before this calendar year as diesel option may have to be dropped for a short period.

It was a CBU engine and hence price was high. Customers did not want to pay for bhp and cost did not work out. It was wise to drop it as making 1.6 in India was not possible at low volumes.

The 1.6 diesel engine, boosterjet petrol were all experiments. It is good to see them experimenting and learning market dynamics.

What about people who are 1st time buyers? That is 50% of PV market. Do you think they will wait for 5 to 10 years for EV to come close to ICE? Even replacement demand will not wait for 5 years.

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You are right. Tucson doesn’t sell well. So are CRV, Tiguan. ( In fact > 20 lakh nothing does big volume. Other than say a fortuner or endeavor). I was only talking about the retaining an existing customers with some upgrade options. But I agree with you that Maruti is doing the right thing focusing on the segment that matters the most. But we cant take this for granted. Last month Venue sold almost twice brezza and became the segment ( sub 4 meter suv) leader. (I know its only the second month and to too early to conclude)

I dont agree with you on S cross positioning. It is the most expensive option (14.22 lac on road in Bangalore for the top end. Of course Ciaz and Ertiga are almost close). If we are talking about premium positioning, Ciaz was moved to Nexa only recently. Ertiga is still sold in normal showrooms. S cross is what they started Nexa with.

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Ciaz is 14 lakhs vs 14.22 for scross. That is just 20k difference. Sedan sells more than a crossover. An SUV sells more than a sedan. We have to compare within that category. So S cross selling 2k units is good. Premium position is within the segment. You cannot compare a cross over with suv or a sedan. They started Nexa with a product they were willing to sacrifice. Crossovers are not popular and they can use it as an experiment. They used Celerio as an experiment for AMT and 2 pot diesel. That does not mean anything premium.

As you rightly said, it is too early. OEM push cars for demo and dealers stock more at the beginning. Wait for 6 months and you can see how it shapes up. For all we know, the facelift of Brezza may help. It is already 4 years old now and we are expecting a facelift.

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I dont think Venue’s number of 9585 is because of dealer demo/display cars. Because this is the second month of dealer dispatch. (Last month they did 8763. This would include the demo/display vehicles). My sense is that Indian customer wants to buy something new.
Anyways lets see how it goes. I am no fan of Hyundai or Suzuki.

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Quoting my words again. I also said dealers stock more at the beginning. Venue is a great car and it deserves volume. However it is too early to jump to the conclusion that it toppled the current best seller.

I am not a fan of Suzuki or Hyundai. I was only quoting facts. Since I am not married to the stock, I can exit if they don’t perform as expected. So far they have been doing all the right things in my opinion.

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Yes. You are right that they stock the car. But thats not possible with newly launched cars that are in demand. Dealers struggle to get allocation. In fact venue has a waiting period. ( Booking crossed 50k).

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Since people are expected to book more, dealers stock more at the beginning. Remember that dealers order the car before a booking comes in.

They do it because of this.

Screenshot_2019-08-12-22-30-28-74
Screenshot_2019-08-12-22-30-28-741078×1625 54.4 KB

Eventually when interest fades, booking starts to decline and dealers reduce their order size.

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But I am afraid its not possible for the dealers to do so for the newly launched cars that are in demand. I have seen their stock yard. Also personally know them. They say its very difficult to get allotment/allocation whatever its called.

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If you talk to the OEM’s inventory management team, you can see the dilemma. They forecast a value and start production. When bookings start appearing, they get a better picture and ramp up or scale down. Dealers are rationed for few months. But after those few months, dealers order before bookings come in. Say if there are 20 bookings this week, dealer places order for 30. If he sees decline in order, he reduces it.

So ,
Phase 1: Rationed sales to dealer
Phase 2: Production bottleneck is over and dealer allowed to place advance orders. He orders optimistically if past ration was significant.

We need to give at least 6 months to pass through the 1st 2 phases.

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Agreed. There is a strong case for EVs to become the new world order.

Although when it comes to Government, I have a different sort of worry too. With Europe and US, they sort of manufacture lithium ion batteries and that’s why their production cost goes down. For India, we have to import batteries and even if there is no import taxes, but the Forex fluctuations will make the battery expensive. Which in turn makes the car expensive.

Indians are extremely price conscious. A tax deduction / exemption / rebate means very little when they have to pay an exorbitant price for a car. For metro cities of India, range is needed. Because jobs are usually located 20-25 kms of their choice of residence. So if a EV priced below Rs. 10 lakhs will give around 100 kms on full battery, then their choice automatically would be towards Ola/Uber or a small ICE car.

It’s my understanding that if batteries are manufactured in India itself then costs will come down and they will start to even understand how Indians drive and how road conditions are different than the ones in Europe and America.

If this issue is recognised by Government quickly then in no time EVs will outsell ICE cars.

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Check out the MoU between Toshiba and Bolivia, Toshiba and Suzuki / Denso. You can also read about the MoU between Bolivia’s state lithium mine and Government of India.
By 2020 , we will have small amount of Lithium batteries rolling out of Gujarat for Maruti cars in B and C segments. Currently 5 to 10% of cars from Maruti have imported Li batteries. They cost Rs 49,000 which is on the higher side.

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Thanks for sharing. Yes, I have gone through the agreement.

India will very soon have embassy in Bolivia too and 100 million Line Of Credit will do wonders for import of lithium.

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Tata chemicals is setting up LI battery plant along with exide and others. Govt is setting up Nalco to buy stakes in LI mines abroad. In any case first wave is going to be for two-wheelers , auto and buses. Charging infra will be needed only in cities for these. Most of the two wheelers do lt even travel 100 km in a day. Cars will come later but at that point we will start seeing demand shift. Also regarding cost being higher … >50% of EV cost is battery and battery prices are coming down fast … we should have battery prices <50% in next 5-6 years. That will bring down cost.

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