India's top carmaker Maruti Suzuki India Ltd (MSIL) has increased its dealer margins for three of its best-selling cars on the back of increase in operational expenses at its dealerships which are burdened with rising inventory and a weak domestic car market.
The company has boosted the margins by Rs 3,000 per vehicle across its top models- Maruti Dzire, Swift and Vitara Brezza, sources told Livemint. Maruti Dzire is a compact sedan while Swift is a hatchback and Vitara Brezza is a compact sport utility vehicle.
The increase took effect in January and is done to add liquidity to dealerships amid subdued demand for Maruti's passenger cars. The dealers are also facing a credit crunch following the crisis at Infrastructure Leasing and Financial Services Ltd (IL&FS) which had set off a liquidity crisis in India's banking system, the report said.
As the auto sales are slackening since September, dealerships are struggling with unsold stocks even as their operating costs continue to balloon.
According to the report, Maruti Suzuki is the first top carmaker in India to raise dealer margins, although it can affect the company's profit margins immensely. The carmaker also jacked up its car prices from 1st January.
The source in the know of the development said that Maruti Suzuki is doing everything it can to aid its dealers at this time of sticky demand.
"The dealers have been offering huge discounts and inventory has again piled up in February," the person said, requesting anonymity. The companies "thought that revival has started from December and January after a bit of a pick-up in retail sales but February sales have slumped again," the person stated.
Meanwhile, no official confirmation has come from Maruti Suzuki on the news report. According to the Federation of Automobile Dealers Associations (FADA) which tracks retail vehicle sales in India, retail car sales in the country plummeted 8.25 per cent from a year earlier in February to 215,276 units, the steepest so far this fiscal year.
Maruti has also pruned its sales growth forecast for this fiscal year to 8 per cent from its projection of more than 10 per cent at the beginning of the year.
As per the data from the Society of Indian Automobile Manufacturers (Siam), the company dispatched 18,795 Swift Cars, 19,073 Dzire cars and 13,172 Vitara Brezza SUVs from its factories to dealerships in January this year.
The carmaker has taken the decision to raise dealer margins on its three models based on the January sales performance which would cost Maruti about Rs 15 crore per month, the report said.