Maruti cuts production by a quarter
A slowing demand in India’s passenger vehicle market has prompted the car market leader, Maruti Suzuki India, to cut production by a quarter over March last year, said people aware of the company’s plans.
Maruti is estimated to have cut production to around 126,000 units as compared to more than 172,000 units a year ago, which is a 26.8 per cent reduction. This is in sharp contrast to a positive trend in the past several years, including double-digit growth for the last four years.
The cut comes amid demand uncertainties ahead of the Lok Sabha elections and Assembly polls in some states, and a switch to stricter emission norms, which takes effect on April 1, 2020. A Maruti Suzuki India spokesperson declined to comment on the matter.
Production at the local arm of the Japanese carmaker in March 2019 is estimated to be the lowest since March 2015, according to the production data notified by the company to the stock exchanges and Society of Indian Automobile Manufacturers (Siam).
Production shows a deaccelerating trend on a sequential month-on-month basis. In February 2019, Maruti produced 148,000 vehicles.
The cuts come amid flagging sales. In the 11 months from April to February, Maruti’s domestic sales grew 6.7 per cent.
Auto companies in India count despatches to dealers as sales.
Most of the growth, however, came in the first quarter of 2018-19, when despatches in each of the three months advanced at more than 14 per cent. Since June 2018, sales have remained muted or in low single digits every month.
“Whatever was planned six months ago has not worked and sales have been falling month after month. In a departure from the earlier plan of closing the year with 2 million units, the company may just do 1.87 million as the second half has been flat for the company,” said a Maruti Suzuki supplier.
“It is a sign of a large system inventories that a production cut is necessitated. However, what is alarming is that the company is struggling with inventories for close to six months now,” said Mahantesh Sabarad, head, retail research, SBICAP Securities.
With every second passenger vehicle sold in India coming from Maruti Suzuki’s stable, the company’s lacklustre sales in recent times reflect the slowdown in India’s broader passenger vehicle market.
A combination of factors, including the tightening of credit norms by financiers in the aftermath of the Infrastructure Leasing & Financial Services crisis, higher ownership costs, including increased premium on insurance and higher fuel prices, slower economic growth, and a volatility in the stock markets have weighed on buyer sentiment. Between April and February, sales of passenger vehicles in India advanced by 3.3 per cent to 3.09 million units over the same period a year ago, according to Siam.
Bracing for the lull in demand and pile of unsold stocks, every other two-wheeler and car company has been paring production, said a top official at an auto component maker that counts leading automakers as its clients. He estimates production cuts across all the manufacturers to be in the region of 5 per cent to
“India’s passenger vehicle market is facing a challenging business environment, with urban sales declining and rural sales growth coming close to single digits in the past few months. A few regions witnessed a higher monsoon deficit, impacting the rural economy, which, in turn, has dragged down demand over the last four to five months,” said Mitul Shah, vice-president, research, Reliance Securities.