Two-wheeler, car manufacturers cut production with inventories reaching alarming levels
BusinessToday.In March 19, 2019
A week after the Federation of Automobile Dealers Association (FADA) flagged off declining two-wheeler sales - down 7.97% to 11,25,405 units last month compared to the year-ago period - top manufacturers in the space are reportedly now cutting back their monthly production to handle the piled-up inventory.
Hero MotoCorp, Honda Motorcycle and Scooter India (HMSI) and Royal Enfield have all decided to cut back their monthly production by around 15% from the current month till May, The Financial Express reported, since two-wheeler dealers are in a high stock situation. Companies generally align production to demand because once the inventory with dealers crosses the normal mark, they run short of space to store the products.
In fact, inventory levels have reached 80-90 days of stock against the normal level of 20-30 days. Nikunj Sanghi, director, international affairs at FADA, told the daily that it has been communicated to the manufacturers that with inventories reaching alarming levels, they expect production to be recalibrated over the next few months. The dip in two-wheeler sales is not a temporary phase either. Sales have been sluggish for the past six months. Moreover, between April and February of the current fiscal sales grew by under 7% against 14% in the same period in FY18.
Two-wheeler market leader Hero MotoCorp, which reported 1.96% decline in total sales in February, has seen production dip since December. While output remained flat year-on-year (y-o-y) in December, it dipped 13.54% y-o-y in January. Production in February also reportedly remained flat.
Similarly, HMSI witnessed a decline of 11.66% last month in terms of motorcycle sales while scooter sales plunged 19%. With inventory levels going up to over 60 days, the company had to curtail production in December. Its output dropped 12.64% y-o-y and 14.93% y-o-y in January and February, respectively. It is expected to drop further to 15% in March.
Retail sales of passenger vehicles (PV) aren't faring any better. According to FADA, sales in February declined 8.25% to 2,15,276 units compared with the same period last year, hit by lower offtake by end customers. "After a month of spike in PV sales in January which was largely due to year-end stock clearance getting extended and a few new launches which generated some excitement, the industry is once again witnessing downward trend as February turned out to be one of the slowest months for auto retail during this financial year," FADA president Ashish Harsharaj Kale said earlier this month.
According to SIAM, February witnessed the seventh decline in eight months. "With people postponing discretionary spends like buying cars ahead of the elections, coupled with the current subdued sentiments, it was unlikely that March sales will be high," said SIAM Director General Vishnu Mathur. "So we are more or less looking to end the year at around 3% growth which we have witnessed so far." This is among the slowest growth rates witnessed in the last four years. In the beginning of the fiscal, SIAM had projected 8-10% growth for PV sales but it was revised to around 6% after dip in sales from the third quarter onwards.
In the bargain, companies like Maruti Suzuki India (MSI), Mahindra and Mahindra and Tata Motors have reportedly cut productions. The dealer inventory for PVs is around 50-60 days against 20-35 days. MSI, for instance, is cutting its monthly production by around 20%. A source in the know told the daily that M&M will also correct the production of some models starting this month, barring its newly-launched XUV300, which has seen substantial bookings.
With PTI inputs