Auto companies slam brakes on production
Car and two-wheeler cos to shut plants for several days this quarter to reduce unsold inventory.
More than half a million passenger vehicles worth $5 billion (nearly Rs 35,000 crore) are lying unsold in dealerships at the beginning of June. In the two-wheeler segment, the number is as high as 3 million, valued at about $2.5 billion.
Seven of the top 10 passenger vehicle makers, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra, have announced plant shutdowns between May and June. While some have completed the process, it is either ongoing or scheduled to happen in the coming days for the others.
“What’s the point in producing and pushing stock when the offtake is weak. We have calibrated our production based on demand in May and we will do so in June too,” said Mayank Pareek, president of the passenger vehicle division at Tata Motors.
According to an analysis by ET, the shutdowns are likely to reduce the industry output by 20-25% in the May-June period, which in turn will ease the pressure on the cramped stockyards at factories as well as dealerships. In fact, the dealers are the worst- hit by the inventory that is as much as 50% more than normal, as they have to pay GST on even the unsold vehicles.
Maruti, Mahindra and Tata Motors suspended production for several days in May. These automakers, along with Honda Cars India, Renault-Nissan Alliance and Skoda Auto, plan another round of shutdowns for four to 10 days this month for scheduled maintenance.
Spokespersons for Maruti Suzuki, Honda Cars India, Renault-Nissan and Skoda said their shutdowns were planned. Mahindra in a statement to stock exchanges said its manufacturing unit, Mahindra Vehicle Manufacturers, would observe “no-production days” of between five and 13 days in the first quarter of 2019-2020. It said there were adequate stocks to serve market needs.
Sales in the passenger vehicle market have dropped in each of the seven months through May, as slowing job growth along with rising fuel prices and a liquidity crisis in the non-banking financial companies affected consumer sentiment.