Car makers prune output to suit dip in demand

With demand slowing considerably over the last few weeks, most car and sports utility vehicle makers are keeping production levels low and close to the retail level to suit the demand, which is set for a downward swing over the next two months.

The industry witnessed a near nine per cent cut in production last month, compared to April. With demand this month being poorer than May, car makers say manufacturers fear lower production levels than last month.

Hyundai Motor India (HMI), the country’s second largest car maker, has been witnessing demand weaken over the past two months. “Market demand has been lower this month so far and sales could end lower than last month. Buying sentiment has been very weak,” said Arvind Saxena, director, sales and marketing, HMI.

According to data provided by the Society of Indian Automobile Manufacturers (SIAM), drop in production of cars was the highest at 11 per cent in May compared to April. Although manufacturers are tight-lipped about their output in the current month, they say meeting the levels of May seems difficult.

“The market is moving at a very slow pace, but because of our promotional schemes, sales are not looking bad. We are not expecting any improvement in demand in the conditions in the coming months. Production this month could almost be at par with May,” said P Balendran, vice-president (corporate affairs), General Motors India.

As the market moved at break-neck speed till five months back, leaving many component makers lagging in meeting demand, vehicle makers, too, produced more resulting in piling up of inventory at the dealer end once demand dried up.

Some companies like Mahindra & Mahindra and Maruti Suzuki are using the period of maintenance shut down to prune inventories at dealers. Both companies will see a week long shut down of their plants this month.

“Production is always tuned to suit demand, and no company would allow their inventory to go up substantially. In the case of M&M, too, production is tuned on the lines of the demand. Most companies take a maintenance shutdown and we too will be taking a week long shutdown this month. April and May have been lower in demand but I cannot comment on June as yet,” said Pawan Goenka, president (automotive and farm equipment sectors) Mahindra & Mahindra.

Market leader Maruti Suzuki will, however, be an exception. The company stated that inventories at most dealers have come down following reduced supplies after one of its plant faced complete shut down for nearly two weeks.

“Our inventories were intentionally kept higher in anticipation of high demand, but they are presently at a much comfortable stage,” said a Maruti dealer in Delhi.

Component manufacturers, too, have been asked by vehicle makers to reduce their supplies as a short-term measure before they pick up again just before the festive season.