My article: https://asia.nikkei.

com/Business/Business-trends/Maruti-Suzuki-sales-
continue-to-fall-as-India-car-demand-slows-ahead-of-elections

Maruti Suzuki sales continue to fall as

India car demand slows ahead of
elections
Automaker cuts production to amid inventory pileup
APRIL 01, 2019 21:11 JST

Total sales including exports fell 1.6% to 158,076 units last month, the company said in a statement on Monday.   ©
Reuters

MUMBAI (NewsRise) -- Maruti Suzuki India's sales continued to decline as

demand for cars slowed further in March, piling up inventory and forcing the
nation's largest carmaker to cut production.
Still, the Suzuki Motor unit expects demand to pick up after India's general
elections due later this month and the next amid hopes of consumer
confidence returning in Asia's third-largest economy.

Total sales including exports fell 1.6% to 158,076 units last month, the
company said in a statement on Monday. Domestic sales of Maruti's cars,
minivans, and sport-utility vehicles fell 1.5% to 145,031 units. Export declined
almost 13% to 10,463 units.

The company's overall sales in the last fiscal year ended 31 March grew 4.7%.

Passenger vehicle sales in India have been tottering since July, reflecting a
slowdown in the overall economy, as fuel prices rose and farm incomes
dropped. The nation's gross domestic product grew at the slowest pace in five
quarters during the October-December period. A credit slowdown in the
aftermath of a near meltdown at a major non-banking financial company in
October further damped automobile demand.

"As manufacturers, we should be flexible in our plans to be able to adjust to

what customer behaviour comes up in the next few months," Maruti Chairman
R.C. Bhargava told CNBC TV18. "We have adjusted the production in March,
so that we don't end up with a large inventory."

Last month, media reports said the carmaker cut its March production target
by nearly 27%. Bhargava said a lot of regulatory changes in the past few
months and those imminent ones relating to safety and emissions are
prompting consumers to hold back purchases. Analysts expect at least 25% of
Maruti's portfolio of cars to witness a 5% price increase due to India's new
safety standards.

According to Nomura, inventories of passenger vehicle stood at 60 days at the

end of February. The brokerage expects demand recovery to be back-ended in
the second half of this fiscal year as economic growth recovers, election
uncertainty goes behind, and pre-buying sets in as prices rise sharply ahead of
a new regulatory change due in April 2020.

"Evidence of the past two general elections shows that in the year before the
elections, sales slow down considerably," Maruti's Bhargava said. "The
moment the elections are over, the sales go up."

Bhargava said he expects sales to pick up this fiscal year as car penetration in
India is not very high.

"In all these years, I've never seen two or three years of successive decline in
sales."

Smaller rival Mahindra & Mahindra reported a 1% rise in total March sales at

62,952 units. The company witnessed a 5% growth in sales of its SUVs on the
back of new launches.

Shares of Maruti gained 2.6%, while Mahindra lost 1.7% in Mumbai trading.
The benchmark Sensex index closed 0.5% higher.

--Dhanya Ann Thoppil

Commentary:

The article presents a situation in car market in India that occurred before the
general election 2019. The article has taken the reference of a particular car
company that is Maruti Suzuki. The article shows the sales statistics of previous
month (May, 2019) where its sales had dropped by 1.6% due to increased price of
fuel, which is one of the aspects of the cross-elasticity of demand. In this paper I
shall be discussing various factors that may have brought this change in the
market.
Having general election due next month, there was a hike in the price of fuel,
mainly in diesel and petrol. It has been widely accepted that this price hike occurs
every general election. There are many political and business elements which
cause this hike (which shall not be briefly discussed in this paper). As the demand
of petrol and diesel increases, for the market to be at equilibrium, the price of
petrol and diesel also increases.
All the market of passenger vehicle is tottering since July, the time when the
demand of fuel rose and thus, its price, also doubtfully the campaign for elections
started this time. Reasons for this rise in demand is argumentative so, there is no
any definite reason for the rise in demand. But it occurs periodically, exactly
during the time of general elections hampering the sales of cars. This overall trend
in the market is known as Cross Price Elasticity of Demand. According to
Investopedia, the cross elasticity of demand is an economic view that measures
the responsiveness in the quantity demanded of one good when the price of
another good changes. Also called cross-price elasticity of demand, this
measurement is calculated by taking the percentage change in the quantity
demanded of one good and dividing it by the percentage change in the price of
the other good1. However, this specific situation is negative cross elasticity of
demand. This trend arises in the market when there is a change in quantity
demanded of one good which occurs due the price change of another good. In the
case of our news article, the 2% rise of fuel lead to 1.6% decrement of supply of
Maruti Suzuki cars. If there was a 4% rise in the price of fuel, the decrement of
supply would be 3.2%.

1
Hayes, A. (2019, October 13). Understanding the Cross Elasticity of Demand. Retrieved from
https://www.investopedia.com/terms/c/cross-elasticity-demand.asp.
 Figure 1: General Compliment Effect

In figure 1, there are shown responsiveness of two different goods X and Y. X and
Y in this case are complementary goods. Complementary goods are such goods
when price increment of one good decrease the quantity demanded of another
good. In figure 1 price increase of good X decreases the quantity demand of good
Y. Also, the change in the price and quantity demand is proportional. First, the
figure below shows how increment of demand of fuel in India gave rise to the
price of fuel. This can be shown easily by a simple figure of demand and supply
and their relation to the equilibrium prices.
 Figure 2: Shift in demand curve due to Cross Price Elasticity

We can see in figure 2 when the demand of fuel rose from D 1 to D2, a rightward
shift, the market had no extra supply to accommodate with the rising demand.
Thus, it created a new equilibrium price in the market. The equilibrium price is
higher than the previous equilibrium price thus giving rise to the price of fuel.
According to our news article, it can be noted that due to rise in prices of fuel the
automobiles industries are facing lack of demand of their cars. This compliment
effect is explained through figure 2. Being a compliment goods, when the price of
fuel rose from P to P1, the quantity demand of cars in general decreased from M
to M1. However, this change is proportional. The change in price and demand of
any compliment good is proportional. Because of this reason car manufacturers
tend to be very careful producing the quantity of cars. Also, because of similar
reasons they produce cars in as many intervals as possible in order to study the
fluctuating market and produce accordingly.
Similarly, since the continuous rise of prices since last month there has been
continuous decline of demand of Maruti Suzuki cars, thus affecting its supply. The
company is expecting, after the elections their supply shall continue smoothly
because fuel prices will drop to its normal price and thus, market equilibrium
price will also drop.

Bibliography:
Hayes, A. (2019, October 13). Understanding the Cross Elasticity of Demand. Retrieved from
https://www.investopedia.com/terms/c/cross-elasticity-demand.asp.