Carmakers like Maruti, Tata Motors, Hyundai and others streamline production, cut output to prevent inventory pile-up

Aligning with shrinking demand, carmakers plan to cut a fifth of their production in July, as customers intimidated by high interest rates and spiraling fuel prices shy away from making purchases. Car sales continue to dwindle though the two-wheeler manufacturers remain largely unaffected.

Car production

The impact of the slowdown is largely felt by carmakers. In a cascading effect, component makers, including world’s largest automotive component makerBosch, are curtailing production by temporarily shutting plants and trimming shop floor timings.

Sources in the automotive industry said companies are facing a huge inventory of unsold passenger vehicles that stood at over three lakh units in May and is likely to have scaled to over four lakh vehicles in June. The inventory has overshot the normal 25-day levels for most companies, though petrol vehicles are much more affected.

Nikunj Sanghi, president of Federation of Automobile Dealers Association, the apex body of automotive dealers, said inventory levels, which generally pile-up in the second quarter, have peaked unusually in the first quarter. “In case of petrol vehicles, the inventory is as high as 45-60 days, which is very tough and has a huge impact on the dealer’s profitability.”

The scenario shows no signs of improving, forcing automakers to take some harsh measures, including temporary production cuts, as dealers wail of June being the worst month for sales in 2012.

Maruti Suzuki is in the midst of a weeklong plant shutdown to trim its production cycle in July. A high level of inventory exists at its stockyard and the dealerships. “There is no respite in slowdown this month. In fact the inventory has increased since May. There would be some steps to rationalise shop floor operations, especially of petrol vehicles manufactured out of Gurgaon next month,” a senior Maruti executive said.

Country’s largest automaker by revenue, Tata Motors, faces a double whammy as sales of both its passenger cars and bigger vehicles like trucks and buses are tapering, thus necessitating plant closures.

It has stopped production of several vehicles, including light and medium commercial vehicles like 407 and 709, for the time being. Tata Motors shut its truck factory in Pune for three days earlier this week to align production with market demand and announced closure of its Jamshedpur plant for three days from June 28-30, besides trimming production at other facilities. “All different plants would have rationalised production as we want to keep our inventory under control,” a senior executive of Tata Motors said.

Carmakers are largely trying to control stock of petrol cars, since numbers have spiraled as customers prefer diesel variants due to massive price difference in both the fuels. Toyota Kirloskar Motors, Italian carmaker Fiatand General Motors have streamlined their petrol cars production in tandem with the market demand. “Depending upon the demand and inventory situation, we may shut down our plant for 2-3 days next month,” Fiat President & CEO Rajeev Kapoor said.(curtsey: economic times)

Rupesh Yatesh Dalal
Head Research Department

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