Maruti Suzuki: Customers are happy to buy vehicles even if gasoline exceeds Rs 90 per liter, says RC Bhargava of Maruti

Gasoline prices by themselves aren’t necessarily as demand-damping as the initial vehicle taxation when you buy a vehicle and on financing terms, says RC Bhargava, President, Maruti Suzuki.

The vehicle scrapping policy coincides with the exit of the automotive sector from the impact of Covid-19. Is the policy in its current form good enough to stimulate demand?
The biggest advantage of this policy is that it recognizes the importance of properly maintaining vehicles. For the citizens in general it is important that the vehicles are in good condition in terms of safety, environment and this was recognized for the first time by the government and Mr Gadkari deserves congratulations for doing so.

If this is good for consumers, what does it mean for OEMs because the policy is also that almost 5% of discounts will have to be spent by OEMs? Are OEMs willing to shell out about 5% more in rebate to get owners of existing vehicles to scrap vehicles and buy a new one?
This is just advice from the ministry. This scrapping policy will not come into effect for cars for another three years, that is to say until 2024. Many discussions will take place with the government. I can understand the delay because you have to build the infrastructure. Today we do not have the mechanism to certify the fitness of vehicles in a way where the integrity of the certificate is above the issue. You don’t have to pay a certain amount of money and get a certificate. This therefore requires an appropriate infrastructure and an appropriate operating system. It will take time and during this time many clarifications and other changes are likely to occur.

From a citizens’ point of view, it is important that vehicles remain in good condition not only at the end of 20 or 15 years of their life, but throughout the life of the vehicle. Citizens are in danger if a vehicle becomes unfit after five years. There should therefore be some form of regular quality control. Vehicles will need to be tested and repaired accordingly because people today break a brake light or a turn signal or a headlight and don’t bother. These are all safety factors and must be properly considered. This will be good for the auto industry as shop jobs will increase, consumption of spare parts will increase, and the consumer will be happy that vehicles do not break down and block traffic. It’s a win-win for everyone.

While the policy is voluntary in nature, are there sufficient incentives to bring vehicles to the scrapyard as well?
If a vehicle is to be tested for its physical condition, the vehicles will need to be tested. Today, we are saying that after 15 and 20 years, the government may change that. If a vehicle is out of shape, there is no voluntary scrapping at this point. This becomes a mandatory scrapping because an unfit vehicle cannot circulate. It cannot be checked in and is not allowed on the road. I cannot sell an unfit vehicle because a customer buys a vehicle in good condition. The company demands that it not be allowed to operate it on the roads if it becomes unfit after any period of time and not necessarily after 20 years or 15 years.

The government said state governments could be asked to offer a road tax reduction of up to 25% for personal vehicles and up to 15% for commercial vehicles. It is clear that the ball is now also in the court of state governments. Do you think state governments will agree?
I would appreciate a discount because some of the state taxes are very high. But logically, if a vehicle is unfit and it has to be scrapped because it is unfit, where is the need to incentivize it to buy a new vehicle? He has an unfit vehicle and should not be allowed to use it. It’s dangerous for everyone. It is not doing anyone a service if it becomes an unfit vehicle. If he finds the cost of repairing it too high to restore it to the required fitness levels, he should remove it. So where is the need for an incentive for this, it’s not very clear to me.

Are you saying that the industry does not agree with the 5% rebate? That the minister asked the industry to grant for vehicles that are going to be scrapped?
The government only said it was advice to industry. But this needs to be discussed further with the government. If people were scrapping vehicles while they were still fit and it was done to support demand, as has happened in many countries in the past, the government temporarily pushed the vehicles to be discarded, as I understand it. But when an unsuitable vehicle is scrapped, why should the customer be prompted to scrap it?

I understand why you are saying that there should be no incentive to scrap an unfit vehicle. Given that this is advice, what kind of conversations do you plan to have with the Center? Do you think the Center should encourage others?
We are starting on the new aspect of vehicle fitness certification. We haven’t had all those 70 years of making cars in India and it will take time to develop it. Mistakes will be made. Corrections will be necessary to be applied, and then an appropriate solution will be found. What is said today will therefore not necessarily be the last word on what the policy will be. We all need to be a little more easy going and understand that when you start something, you aren’t 100% successful.

When you say we need to build infrastructure, what are you talking about? What will the auto industry seek to ask the government for now?
You need a center where vehicles can be brought in for testing and certification whether they are in good condition or unfit or if they need to return to the shop and do some repair work. This means that proper equipment is needed to perform the necessary tests. These should be as automated as possible so that human factors do not enter the certification process. Test records should not be editable and therefore the integrity of the certification should be guaranteed. Now this will require an investment in a lot of modern equipment for testing and certification. This is something that has to be done – as the department said – on a PPP model. Industry, associations and manufacturers will all have to come together to determine how these centers should be created. There is no such thing today.

Gasoline prices in various parts of the country have almost reached 100 rupees per liter. Is this something that worries you and could it dampen demand in the future?
I don’t know what will happen in the future as the prices of gasoline and oil are constantly fluctuating and this time they have gone up. We don’t know what will happen in the future but all experience shows that gasoline prices by themselves are not necessarily as demand-damping as the initial vehicle taxation when you buy a vehicle and on the financing conditions.

As financing is relatively readily available and interest rates have gotten much better, I think people are ready to buy vehicles and the market today shows that customers are quite happy to buy vehicles even though gasoline exceeds Rs 90 per liter.

How do you compare the scrapping policy with the cash-for-clunkers system that was deployed after the 2008 recession in European markets?
They are very different because this policy was not based on the suitability of vehicles and the policy did not attempt to introduce the concept that vehicles must be maintained and must be in shape not to put in danger to the environment and road users. This policy was intended only to create a temporary demand for vehicles so that manufacturers could overcome this severe slump in demand. The objectives were very different.

We will enter the new exercise. Where do you see it in terms of car sales given that Covid cases are on the rise even as vaccinations continue?
We must not allow this resurgence of Covid to grow stronger. The Prime Minister also talked about nipping it in the bud by speeding up the vaccination program. I hope all states and agencies involved will do so quickly and take whatever steps are necessary to step up vaccination, follow-up testing and whatever is needed.

If Covid is properly controlled and the economy continues on a path of positive growth, demand for cars will remain good this year. We must prevent demand from falling if vehicle prices rise rapidly. The costs of raw materials are increasing. Regulatory requirements are increasing. These are some of the areas that the government will need to look at both from the point of view of industry and central government and for job creation, everyone should work together to prevent demand from decreasing.