Maruti says profitability a challenge amid rising costs

India's automakers are gearing up to ensure the cars they produce are safer, more efficient and less polluting in an effort to comply with the changing government regulations. But such cars will entail a higher investment that will ultimately affect returns.

The largest impact of this transition will be felt by the country's biggest carmaker, Maruti Suzuki, which sells one in two passenger vehicles sold in India. Kenichi Ayukawa, MD and CEO, Maruti Suzuki, said that profitability will be a challenge for the company amid rising costs as it continues to invest in strengthening its leadership position.

"To some extent, we will have to reduce our profit for a while," Ayukawa told Autocar India on the sidelines of Auto Expo 2018. "We can’t pass off everything, but will make an effort in trying to reduce costs. We believe we can absorb them," he said.

The transition to BS-VI-compliant engines by 2020 will require major investment by automakers. The cost towards upgrading diesel engines is likely to be higher than petrol as they require the introduction of additional components.

Maruti plans to develop its own diesel engine by 2020 in an effort to move away from its dependence on Fiat for them. Hence, the carmaker is developing an in-house, 1.5-litre diesel that will power the next-generation Vitara Brezza, among other models. It plans to develop hybrid technology and electric vehicles as well, which will entail further investment. In fact, Maruti plans to launch its first electric vehicle in 2020.

Another area that requires investment is crash safety. Manufacturers will have to upgrade their existing models to meet the stipulations laid out by Bharat New Vehicle Safety Assessment Programme that comes into force for existing models in 2019. Maruti, which has set up an R&D facility at Rhotak at the cost of Rs 3,800 crore, is investing in more expensive, but lighter and stronger, high-tensile steel and new platforms to enable its cars meet the safety norms. The new Swift, which is based on the new 'Heartect' platform shared with the Baleno and Dzire, is much stiffer than the outgoing model despite being 85kg lighter.

C V Raman, executive director - engineering, Maruti Suzuki India, says that apart from costs towards making cars safer and emission-compliant, the carmaker has to invest in technology to make cars more appealing as well. "A customer does not see value in regulatory changes. He would much rather pay for an infotainment system. We need to provide a connected infotainment system while meeting the regulations and still keep the market volume," Raman told Autocar India.

While controlling costs is a challenge Maruti will seek to overcome, in the meantime, it foresees a higher sales growth in 2018, compared with 2017, on the back of increasing rural demand. "Budget 2018 has been rural-friendly and supportive of people with lower income, which will encourage buyer demand. I believe growth will be better this year than in 2017," Ayukawa said.

In April-December 2017, Maruti registered sales of 9,13,709 units, up 13 percent from 8,06,318 units sold during the same time frame in the previous year.  

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