Maruti Suzuki to slash output in September by 60% over chip shortage

Closure of Bosch plant in Malaysia hurt production in September

India's biggest car maker Maruti Suzuki said on Tuesday that its vehicle production in September will tumble by 60 per cent due to a chip shortage.
 
The company, which had earlier cut down production at its Gujarat plant, said the chip shortage will hit production in Gurugram and Manesar plants, effectively forcing the automaker to cut production by 60 per cent.
 
Owing to a supply constraint of electronic components due to semiconductor shortage, the company is expecting an adverse impact on vehicle production in September in both Haryana and its contract manufacturing company, Suzuki Motor Gujarat Pvt Ltd. (SMG) in Gujarat.
 
It is currently estimated that total vehicle production volume across both locations could be around 40 per cent of normal production.
 
When plants operated at peak capacity in June, Maruti manufactured 1,70,719 units in July but industry sources said that it produced 1,33,520 units in August, cutting its production by 22 per cent.
 
A 60 per cent cut will mean the company will produce around 68,000 vehicles in September, effectively hitting sales during the festive season.
 
This means a longer waiting period for cars and will also lead to some of the variants becoming unavailable at showrooms. Maruti’s senior executive director, Shashank Srivastava, had on Monday said in an interview that sales will be hit by a global shortage of chips that has been disrupting production. “Shortage of semiconductors will stretch for September. As of now, it looks like supply will lag behind demand,” he said.

Maruti’s current stock level stands at 20 days while an ideal inventory level is above 30 days
 
People in the know said the company thought it would be able to tide over the crisis by rationalising production of a variant which uses less semiconductor chips.
 
For instance, the company’s entry-level car Alto was not available in top-spec VXI+ trim for April. Customers were given the option to buy the VXI trim which uses less chips. Similar was the case with Dzire. The top-end ZXi+ and ZXi were not selling in April due to supply-related issues. Hence, dealers were advised to accept bookings for VXi trim of Dzire.
 
However, sourcing was further hit after a plant of semiconductor supplier Bosch in Muar, Malaysia, was shut down by the government due to the pandemic. “Bosch is a large supplier of Maruti and the company was informed that supply will be directly affected as the plant is expected to be completely shut through August and the beginning of September,” an industry source said.
 
Sources said industry lobby group Society of Indian Automobile Manufacturers (SIAM) has asked the ministry of external affairs to reach out diplomatically so that when the plant reopens, Indian automakers are prioritised. Other countries like the US have also started negotiating with chipmakers in Taiwan and South Korea to book slots for semiconductor supply. But according to Maruti chairman RC Bhargava, the crisis will stretch till the end of 2022.