Car-makers are cutting output, say vendors

After commercial vehicle and two-wheeler makers, it could be the turn of car- makers to undertake production cuts on flagging demand as slowdown, high interest rates and shrinking availability of finance mar consumer sentiment.

Some vendors say Maruti Suzuki may take a 5-8 per cent production cut this month as well as in December, though a company official ruled out such plans.

In fact, vendors say that many auto manufacturers have already implemented a 20-40 per cent output cut in October on select models, which is likely to continue.

“Barring Maruti and Hyundai (which has export support), several manufacturers undertook 20-50 per cent production cut in October on select models,’’ said a senior executive with a leading Delhi-based auto parts supplier.

Most car manufacturers, however, denied undertaking production cuts. Vendors, who shared manufacturer-wise production cuts figures with this newspaper, feel the production cuts are aimed at keeping inventory levels under check.

Car sales declined 6.59 per cent in October, dropping for three of the last four months even as overall automobile sales fell 14.42 per cent last month, led by truck and bus sales (down 50 per cent) and two-wheelers (down 18.17 per cent).

“Maruti is moderating production in line with stockholding of its dealers,’’ said the CEO of a Delhi-based vendor. Though festivals in October and marriages in November helped boost sales, December promises to be a tough month for dealers.

“Banks have become cautious (as they can’t send people to repossess vehicles) and are rejecting 20 per cent of the auto loan applications,” said Raj Chopra, CEO, Competent Automobiles, a large dealer for Maruti in Delhi and North India.

This could, felt Chopra, bring down sales by 15-18 per cent as 90 per cent of the car purchases are financed. “December will be the real test. Sales are likely to drop 15 per cent in December because of rejections by banks,’’ said Chopra.

“The feedback that we are getting from car-makers is that the slowdown has hurt sentiment and customers are opting not to buy new vehicles and save money,’’ said a senior executive with OEM supplier, who didn’t wish to be identified.

Given the uncertainty, car makers are often revising their production plans twice a month while they never used to do so even once earlier. Maruti provides a tentative production plan for a month and a firm plan for 15 days, said vendors.

“There’s nobody willing to commit for 2-3 moths. Almost every plan undergoes change in 15 days, depending on the stock-level of dealers. It’s difficult to look beyond one month,’’ said another CEO of an auto-parts manufacturer.

Typically, December is the worst month for sales as customers defer purchases in the year-end, which has a bearing on the resale value. Some have deferred their purchases to buy new models, which will hit the market in the next two months.

“If interest rates come down, it won’t take much time for a revival. It’s the reluctance of the banks and high interest rates that are holding back customers,’’ said Ashok Taneja, president, Shriram Pistons.