Maruti Says Rising Costs will Affect Profitability

• Published On: 12 February 2018
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The expenses for transition to BS-VI emission standards, meeting safety norms and developing hybrids are quite high.

The industry is currently working on ensuring cars they produce are safer, more efficient and less polluting. A lot of these moves will be done to meet changing government regulations. But, the cost of this switch is quite high and the country's biggest carmaker, Maruti Suzuki, which sells one in two passenger vehicles in India, will be hit the hardest. Kenichi Ayukawa, MD and CEO, Maruti Suzuki, said that profitability will be difficult in the immediate future.

"To some extent, we will have to reduce our profit for a while," Ayukawa said. "We can’t pass off everything, but will make an effort in trying to reduce costs. We believe we can absorb them," he added. The transition to BS-VI-compliant engines by 2020 will see a lot of investment from each player. In fact, the cost of upgrading a diesel engine is higher than petrol motors. Maruti is now making its own diesel engine so that it doesn’t have to depend on Fiat for them. Another area that requires investment is crash safety. Carmakers must now meet the Bharat New Vehicle Safety Assessment Programme, which will come into effect in 2019. The company has built an R&D facility at Rhotak, which cost ₹3,800 crore to setup, and is investing in more expensive, but lighter and stronger, high-tensile steel and new platforms for its cars to meet safety norms.

C V Raman, executive director - engineering, Maruti Suzuki India, said, "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."

"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 added.