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Automakers get the shivers as market turns cold

Source : BUSINESS_STANDARD
Last Updated: Sat, Mar 09, 2013 06:24 hrs
Employees work inside the newly inaugurated plant for Tata Nano car at Sanand

Automakers are taking evasive action as domestic sales of cars are headed for a crash for the first time in a decade.

Car-makers have been forced to resort to short closure of factories or cut production sharply to prevent build-up of unsold vehicles this financial year. The latest announcement came from Maruti Suzuki India Limited.

The country's largest car-maker today said it would stop production temporarily at its facility in Gurgaon tomorrow, to align output with demand. "The Gurgaon plant would be closed for a day tomorrow. We already have over a month's inventory with us and want to adjust our stocks according to demand in the market," a senior Maruti Suzuki executive said.



With a daily production of 3,000-3,200 units, the Gurgaon plant makes about 65 per cent of the vehicles manufactured by Maruti; and makes nine of the 14 models offered in India. "Most of these cars are available only in petrol options where demand pull has been low for more than a year," said the executive. "Even on diesel vehicles such as Ertiga and Ritz, there is no waiting (period) anymore."

Maruti registered a nine per cent drop in domestic sales at 97,955 units in February, forcing it to adjust production.

The industry had last month posted a steep decline in sales. According to data with the Society of Indian Automobile Manufacturers, passenger car sales declined by 1.80 per cent to 1,556,283 units between April and January. Growth of passenger car sales is expected to be negative by the end of 2012-13.

Tata Motors had also felt the heat. It recorded a 70 per cent drop in sales, selling only 10,613 units in February. The company cut production at passenger vehicle manufacturing units in Pune and Sanand. It has started single shifts from January, operating half the installed capacities in both the factories. Tata has slashed monthly production of the Nano by nearly 82 per cent over the last two months. Nano had recorded monthly sales of over 10,500 units at its peak but sold 1,500 in January. A Tata Motors spokesperson said, production was being done on a limited scale, as per market demand.

Industry sources said Tatas have an inventory for over one-and-a-half months, while the industry's ideal average is three weeks. An analyst said, "There is one and a half months of inventory, at 175,000-200,000 units, with car-makers. This is nearly double the normal levels of around 20 days kept in warehouses and dealer outlets. There were expectations of a recovery by the end of FY13, but that has not happened."

In the commercial vehicle segment, Tatas have resorted to five block closures (each block of two to three days) in the last few months in Jamshedpur, and asked 2,000 temporary workers not to return to duty. Medium and heavy commercial vehicle sales have fallen 29 per cent in April 2012-January 2013 over the year-ago period.

General Motors, too, closed factories in Talegaon and Halol in separate instances for three days this financial year. It declared no-production days to cut its production by around 20 per cent.

During the slowdown in 2008-09, passenger cars sales had recorded a marginal growth of 1.39 per cent. Car sales had dropped by 2.09 per cent in 2002-03, one of the worst performing periods.

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