Maruti Suzuki, the leading automaker in the country, on Wednesday said it had slashed prices by up to Rs 5,000.
This move will boost demand in the festive season when most cars are sold, it said.
The lower prices will be effective immediately on models such as Alto 800, Alto K10, Swift (diesel), Celerio, Baleno (diesel), Ignis, Dzire (diesel), Tour S (diesel), Vitara Brezza and S-Cross.
Maruti has been offering benefits of up to Rs 10,000 since the beginning of September. The new reduction will be over and above that. Analysts said the price cut would wipe out gains to the automaker’s bottom line from the reduction in corporation taxes.
“Owing to the reduction in the tax rate, we had estimated a benefit of 5-6 per cent in the company’s profit after tax. This is likely to be wiped out now,” said Bharat Giani, analyst at Sharekhan. He added that the price cut was unlikely to boost demand.
R C Bhargava, chairman, Maruti Suzuki India, said, “The money that would have been left over because of the tax cut will now be utilised to meet the reduction in prices.”
Finance Minister Nirmala Sitharaman had last Friday slashed corporation taxes from 30 per cent to effectively 25.7 per cent.
Bhargava said he was hopeful the price cut would increase sales. “But it is difficult to say how much the sales will rise,” he said, adding: “Overall sentiments and stock markets have improved. The scenario looks rosier than before, but only time will tell whether it will translate into sales.”
Auto sales in India have been on a decline for over a year amid tepid economic growth and liquidity issues facing non-banking financial companies. In August, private vehicle (PV) sales touched a 22-year low.
Maruti is the first PV maker to have announced a price cut. Other carmakers said that while they had not cut prices, they were passing on benefits of the tax rate cut to buyers.
Vikas Jain, national sales head at Hyundai Motor India, said the company was passing on benefits from September 21, a day after clarity was provided on the goods and services taxes. The GST Council did not cut taxes on cars despite demand from industry.
Instead of paring prices, the Korean carmaker has been topping up on-going consumer offers. Total benefits for buyers have gone up to Rs 110,000 from Rs 95,000 earlier.
Jain claimed this had improved demand. “Bookings have soared by up to 50 per cent on some models,” he said, adding that many people were hoping for a GST cut before buying a car, but since that did not happen, they have started making purchases anyway.
Analysts feel the price cut was a temporary measure and Maruti was unlikely to hold on to it for very long. This was more so because the company had stretched itself with offers for buyers.
“Once Maruti gets back pricing power, which is weak at the moment, the carmaker might get back to previous levels. There is hardly going to be any impact on earning right away,” said Mitul Shah, vice president, research, at Reliance Securities.
Most carmakers have launched aggressive schemes to attract buyers. Their effect will be evident only next month.
Spokespersons at Tata Motors and Mahindra said they are yet to take a call on cutting prices. A Honda Cars India spokesperson said it had no plans to do so.
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