[TusharK]

Maruti Suzuki has decided to reduce the price of select models by Rs. 5,000 (on ex-showroom price). The move comes following the government's decision to cut corporate tax. The new prices will be applicable from September 25, 2019.



The prices of the Alto 800, Alto K10, Swift Diesel, Celerio, Baleno Diesel, Ignis, Dzire Diesel, Tour S Diesel, Vitara Brezza and S-Cross have been reduced. The price cut will be applicable over and above the current promotional offers.

With the price reduction, Maruti Suzuki hopes to revive demand during the festive season as it will bring down the cost of acquisition for customers.

Link to Team-BHP News

[Sahil]

5000₹ ? Really! Just seems like a notional reduction done to please the government.
Of late it seems like the top management of Maruti are in suck up mode to the center, most often for unjustified reasons. However it’s helping their stock price to some extent, I hope their sales start reflecting the same. No point living in denial.

[chaotic]

Apart from the farcial 5000 Rs. cut, I don't understand how corporate tax affects car prices?
Isn't corporate tax charged on profits/income? Reduction in this tax doesn't reduce the cost of producing a car, in fact, reducing selling price will reduce overall income and thus result in lower tax!
Or maybe I am too stupid to understand finance

[Nav-i-gator]

Originally Posted by chaotic

apart from the farcial 5000 cut, i don't understand how corporate tax affects car prices?
Isn't corporate tax charged on profits/income? Reduction in this tax doesn't reduce the cost of producing a car, infact, reducing selling price will reduce overall income and thus result in lower tax!
Or maybe i too stupid to understand finance

Without going into deep finance, let's just say that reducing price (notionally) is a way of giving dividend (as discount) to the shareholders (customers). This may increase sales, resulting in share prices going higher, resulting in shareholder equity increase, resulting in debt-equity ration going down, resulting in availability of cheaper loans, resulting in lower costs of interest payment.

[2000rpm]

Originally Posted by Nav-i-gator

Without going into deep finance, let's just say that reducing price (notionally) is a way of giving dividend (as discount) to the shareholders (customers). This may increase sales, resulting in share prices going higher, resulting in shareholder equity increase, resulting in debt-equity ration going down, resulting in availability of cheaper loans, resulting in lower costs of interest payment.

You think a decrease of 5000 will increase sales of a product with ticket size of 8 lakhs on an average?

The more actions Maruti team takes, the cheaper they have started looking. I have really started respecting Anand Mahindra more with his views.

[bhavik.1991]

Originally Posted by Nav-i-gator

Without going into deep finance, let's just say that reducing price (notionally) is a way of giving dividend (as discount) to the shareholders (customers). This may increase sales, resulting in share prices going higher, resulting in shareholder equity increase, resulting in debt-equity ration going down, resulting in availability of cheaper loans, resulting in lower costs of interest payment.

Fun fact: MSIL is a virtually debt-free company.

[PPS]

I'm intrigued as to why the Corporate Tax reduction isn't applicable to Ciaz, Dzire Petrol, WagonR, etc ! Shouldn't it be uniform across all models.

[V.Narayan]

This is a signal, even if a token one, to several stakeholders. To the Market - we love our customers. To the Govt - we are with you on matters of national interest. To the Shareholders - getting back into shape is a priority even if it will take a while. To the Employees - don't worry we are going to do our two bits to get output on track again. To their Dealers - we care. To the suppliers - don't panic we are steering the ship to safety. To local State Govt's where their factories are located - we are concerned about avoiding an unemployment situation in your State. And so on and so forth.

When a CEO decides to do something like drop prices across the board on several of his marque products it is done with several factors in mind and with his need to address the many needs of several stakeholders. To say that this is peanuts (maybe it is) or he is pandering to the Govt reflects a lack of understanding of the conflicting forces and priorities a CEO has to balance. And there is absolutely nothing wrong or shameful about showing the Govt. that you are with them on national priorities. The Govt is after all a major customer and a stakeholder in any large nation wide organization. If you are a large business like Maruti you have to work in conjunction with the Govt and likewise the Govt has to listen to you too.

[chittybang]

Maruti clearly is just pleasing the govt. They have given them an opportunity to claim that the rate cuts did make a positive impact. A measly 5000 means nothing more than that.
The hope is that Maruti set the ( very low) bar for everyone else. If they are giving 5000 then it may force others to give a little more to grab some customers. At this point every discount matters when costs have gone sky high.
I guess once the other brands react (if they do )then that would be the final status beyond which discounts will purely depend on how much BS IV stock remains with each one of them.
So if I am in the market for a purchase, whats the right time to jump in and seal the deal?

[chaotic]

Originally Posted by Nav-i-gator

Without going into deep finance, let's just say that reducing price (notionally) is a way of giving dividend (as discount) to the shareholders (customers). This may increase sales, resulting in share prices going higher, resulting in shareholder equity increase, resulting in debt-equity ration going down, resulting in availability of cheaper loans, resulting in lower costs of interest payment.

Apologies, the last line was private sarcasm...i'm a finance major

The point was that corporate tax rate has no easily calculable impact on prices (everything is connected to everything in finance and life!).

As Sahil mentioned, this is either a political move or just meant to create 'click-bait' headlines to generate interest and sales.

[CrAzY dRiVeR]

Originally Posted by 2000rpm

You think a decrease of 5000 will increase sales of a product with ticket size of 8 lakhs on an average?

Maruti plays it wise.

This seems to be just a token amount as others mentioned above, a signal as V Narayan sir rightly mentioned above.

Whatever else can be reduced, they will unofficially do as under 'discounts' to entice customers even more. Remember, our market loves discounts - and Maruti is known to provide token discounts even on products that are doing well in the market.

5000 rupee price cut? Customer:
Sir, another 10000 rupee additional discount, just for you? Customer:

[NFS2024]

Notional discount and that too on majorly diesel cars or low selling models..smart move.

[volkman10]

And here is the Press release:

[rajvardhanraje]

In my opinion this is more of a symbolic gesture by Maruti to make a point to all the stakeholders, just as Narayan sir has explained in detail.

I believe Rs 5000 is not going to make any difference in terms of sales or in the consumers' sentiments. At this moment literally all models in their stable are having significant discounts. For them it's just a matter of reducing the discounts by Rs 5000. Maybe in a few months, the prices might silently creep up again.

[speedmiester]

Whether the price cut is notional or eye wash, it is still better than other manufacturers who have decided not to reduce the price at all.
Anyway Maruti has mentioned that the price cut is over and above the promotional offers being offered already on the models, so that's a good thing.