The year 2021 is turning out to be a difficult year for carmakers. With the second wave of the pandemic hitting particularly hard, production was halted while sales have taken a hit. In this interview, we speak to Shashank Srivastava about the effects of the second wave of Covid-19 on the industry, how the car industry can recover from the slump, along with the rising prices of petrol, the future of CNG cars, hybrids and electric drivetrains and whether the Jimny will ever be launched in India!
Aatish Mishra: Let's start with Covid and how it has affected the industry with the second wave. It's been particularly bad for the country. How has that affected sales for Maruti Suzuki?
Shashank Srivastava: If you recall, we have had a very good bounce back since last year. We had a great quarter two. We had a great quarter three. We even had a good quarter four. All record quarters in terms of the number of units sold. The beginning of April was looking good, because we had a lot of bookings coming in, retails were progressing smoothly. And then, suddenly, there was Covid 2.0, and we found that a lot of states started having lockdowns, starting with Maharashtra. Then subsequently we had the shutdown in Chhattisgarh, MP, Delhi and so on. By the second fortnight in April, almost 20 states were under lockdown. So that obviously affected retails. We were going pretty smoothly in terms of booking and retail in the first fortnight of April. April 1 fortnight we had Gudi Padwa and Navratri period, uptil April 17 or 18, and then subsequently there has been a fall. In May, 27 states were under lockdown and these 27 states contribute almost 94 per cent of the industry retails so you can expect that retails in May would be badly affected.
Last year we had a bounce back, and we would expect a bounce back this year as well, although I'm not so sure, when, and how much, because this time rural segments have also been largely affected. They led the bounce back last year, but this time Covid wave has not only been higher, but in geographic terms, it has been much wider also. The fear factor is much more but I think human sentiments are transient, and you can see a quick turnaround also because the fundamentals of the economy are still strong and people are expecting growth. The RBI said about 10 per cent growth or so for the economy, which is so essential for auto sales, and also for the rural economy, the basics, seems to be okay because the monsoon is expected to be normal. The sowing has been about 3 per cent up beyond the record of last year, the kharif crop is also expected to be good. There is a very good procurement of wheat, last month, so I think it all depends on the Covid sentiment. And that is difficult to predict.
AM: Looking at the next few months, what can Maruti Suzuki do to accelerate that bounce back for themselves?
SS: We do have a very strong digital platform where we are offering consumers a near showroom like experience in their interaction with sales people. That's one big factor which I think has helped us last year, helping us this year as well. In fact, in April, 40- 45 per cent of our inquiries came through the web. It used to be about 30 per cent last year, even after the pandemic, it stabilised around 30 per cent. It went up to 50, then it stabilized around 30. But now again going up to about 45, last month, so I think one thing is how to make it easier for consumers to buy cars to experience car or to do the transaction. What we have done is the subscription service because in many places people are moving away from public transport and shared mobility, but they're still looking at subscription offers that we have developed that platform. Third on the finance part because such events affect the financial situation of consumers. They're looking for some tailor made financial products and in our business 80 per cent of the retail is through finance, and therefore we are also working with the banks to have the financial products which suit every customer. So, this is what we are doing. Of course we are giving comfort to the consumers by following all SOPs regarding Covid, and also we are making sure that the vaccination of the dealer's employees happens not just for their own health and safety, but also for customers. On the production front of course, we have resumed production from May 17, and we do hope that all these measures will help in bringing us back on track.
AM: The Brezza only has a petrol engine. Petrol prices are rising, do you feel like that's going to create a demand for diesel and again, and is there a possibility of a diesel in the Brezza in the future?
SS: When you say petrol prices are rising, let me tell you diesel prices are rising faster. So it is not as if petrol is rising and diesel is constant, the gap between the gasoline and the diesel price is actually coming down, not going up. The gap is in Delhi, less than eight rupees now. In some states like Gujarat, Goa, Jharkhand, Pondicherry, Orissa, the gap is less than two rupees. The gap between diesel and petrol prices, as also on a weighted average basis in the industry, the gap is just under five rupees. And one of the reasons why people used to go for diesel vehicles, was the cost of running was less, but now with the similar fuel prices, the cost of running for both diesel and petrol is almost similar. It is about three and a half, four rupee a kilometre. At the same time the cost of acquisition of diesel vehicles has gone up when you convert it to BS6 from BS4. And that is something which is difficult to bridge even in the long run. So I think in terms of economic logic, there is no reason why people should go for diesel.
Going forward when you have tighter norms in the second phase of BS6, the cost of conversion for the diesel vehicles will be even higher. So in the long term it doesn't make sense from both the consumer side and from the OEM side.
The cost of fuel itself is rising and we are talking of the relative cost of diesel and gasoline, and the absolute cost of a litre of fuel. But when you look at CNG, for example, the cost of CNG is still quite low like in Delhi it is Rs 43 to a kg, so in that sense CNG seems to be a better option, both for in terms of the running cost being only one rupee 60 paisa per kilometer, and also the cost of acquisition when you compare the diesel is very low. So in that sense CNG is a good option and we are seeing that traction in terms of the volumes which we are looking at, for us, in the last couple of years and going forward as well.
AM: So will the Brezza get CNG? And can we expect more CNG cars this year?
SS: It's possible. It is difficult for me to confirm product plans here, but we have eight models which are CNG, so far. Alto, Celerio, WagonR, Dzire, Ertiga, Super Carry to name a few. And we have plans to introduce CNG in other models as well. So we have a definite timeline going forward. It's a big, big market. Last year we sold 1.6 lakh CNG cars. We are planning to sell 2.5 lakh this year. That’s a large number, and maybe as high a number as some of the manufacturers’ total production. So yes, it’s difficult for me to give a timeline but you can expect more models with CNG going forward.
AM: The Brezza also gets a mild-hybrid. What about the possibility of proper hybrids in Maruti’s cars in the future?
SS: That is a debate we all are having, especially when we talk of electric vehicles. Then there is this debate that you cannot just go to EVs immediately because battery technology costs are high, we don't have that technology where you can offer great value to the consumer, the infrastructure is not in place at the moment. For EVs, we also see the consumers having range anxiety. That is what is inhibiting the progress of EVs, but in the process also we believe that as we go forward, the powertrain costs for EVs will come down, because battery costs will come down. It is already coming down and at some point of time, the powertrain cost of EVs will become cheaper than the ICE engine.
There will be an inflection point when EVs will take off in the intermediate period, and it is expected that the intermediate period will be quite long. What do you do about the vehicles which will be produced? Between today to 2030, India will be selling 70 million cars in going by the current CAGR rates of growth. Maybe it's expected 6-7 million will be EVs. But what about the balance 63 million? You need to do something about it and we believe that the process to EVs is hybrid, and fuel options as CNG. Hybrid could be very good. Electrification is what I think is the way, and that is where hybrids become very important as a part of our overall strategy.
Sirish Chandran: You're talking about hybrid, being an important part of the journey. What about government support for it?
SS: We would expect some sort of support, definitely for this period for hybrids as well, because remember that many of the powertrain components for EVs and hybrids are common. If you want to keep the EV acceptance high, you need to bring localisation in to bring the cost down, so that you can have affordable cars for the consumers. That is possible only if you have localisation, that is possible only when you have volumes. That is possible only when you have lower initial costs, and at the moment, that doesn't seem to be the reality. So in the intermediate period, you require some support to make that localisation possible and the volume, which will ultimately make it possible for EVs. So I think they will support this direction as well.
SC: If the government does not because as of now the government has shown no inclination towards supporting hybrids. Then how do you transition to your hybrid journey?
SS: Support help quicken the pace, and in the absence of support, we keep looking at how to bring costs down anyway because that's something which all manufacturers do for anything that we introduce – new technology, old technology, new models – we always look at how to make it beneficial to the consumer, by reducing costs as much as possible, because consumers will look at value. We need to find a sustainable business solution to this. You will find a lot of manufacturers introducing and showcasing EVs. So it is not as if technology is not available. It is. Can it be sufficiently large volumes to make a difference to the environment? Can it be in sufficiently large numbers to make it business sustainable or not? That seems to be absent in some of the other OEMs. It seems that the introduction of EVs is to showcase the technology, rather than intention to make a difference on the volumes or the environment. We believe that volumes only will bring the change in environment and pollution levels, and therefore it has to have large volumes and sustainable as well. Otherwise you see many manufacturers, having EVs selling maybe 5-10 units and selling a large number of big diesel SUVs in the same category. So, the environment may not be the actual reason for exhibiting those technologies.
AM: How do you differentiate your product from everybody else's, because the compact SUV segment is a crowded space?
SS: Differentiation in a crowded category is very important. The Brezza is a market leader, despite that competition in this segment which means that there is a differentiating element for the Brezza. I think, as far as the gasoline is concerned, the 1.5-litre engine is something which people associate with a good power, very good fuel efficiency, so the fuel efficiency of the Brezza is upward of 18kmpl, which is great. The combination of the larger engine with great fuel efficiency in the SUV is a big differentiator. There are other company-level differentiators. For example we have a great after sales network. We have a big network anyway, across the country in more than 3000 cities. So that is also on a company level, a differentiator. Maruti’s focus on customer satisfaction to be near the customer is obviously overall also helping our individual product brands, that's also the case for the Brezza.
AM: What future SUVs can we expect from Maruti Suzuki? Can we expect the Jimny anytime soon?
SS: As you know, we have started producing the Jimny for the export market a couple of months back. We showcased it in the Auto Expo 2020 just to take a feedback on how consumers react to it. It was a tremendous feedback actually, both in terms of the acceptability of design, and also in terms of response: a lot of people said oh this is the product we want. But then marketing plans are not just about consumers liking a style of product. It's also about the value which they can derive, the costs that come along with it, the prices at which they will be offered, what type of consumers, what is the competition in this segment doing. So we are considering all those factors, including the very good consumer feedback that we have got, and we are currently in the process of finalising our marketing plans and we will definitely inform you once we are ready with it.