Slowdown Blues: Maruti Suzuki cuts production by 18% in May
BusinessToday.In June 10, 2019
Maruti Suzuki India has cut vehicle production for the fourth consecutive month in May, according to a regulatory filing. The largest car manufacturer in India has reduced its production by 18.1 per cent on an annual basis, manufacturing 1,51,188 units in May, including Super Carry LCV. Maruti Suzuki had produced 1,84,612 units in the corresponding month last year.
Barring the Super Carry LCV, Maruti Suzuki reduced production across all segments, including the popular compact and mini passenger vehicles. The company slashed production of passenger vehicles, including Alto, Swift and Dzire, by 18.88 per cent to 1,48,095 in May 2019 as compared to 1,82,571 units in May 2018.
Maruti Suzuki cut production of mini segment vehicles by 42.29 per cent to 23,874 units last month as against 41,373 units in the year-ago period. The company also slashed production of compact segment cars by 9.54 per cent to 84,705 units in May 2019 as opposed to 93,641 units in May 2018. The production of company's utility vehicles also declined last month by 3.21 per cent to 24,748 units, in comparison to 25,571 units in May 2018. The production of vans declined by 34.99 per cent to 10,934 units last month compared to 16,819 units in May 2018.
Following weaker demand, top passenger vehicles and two-wheeler manufacturers of India had announced production halt during the ongoing quarter. The industry-wide factory shutdowns are expected to help the companies reduce the unsold inventory accumulating on the back of a weak market. The decision, however, is expected to hit the production and growth targets of the Indian auto sector.
At least seven out of top ten passenger vehicle manufacturers had reportedly announced production shutdowns between May and June. Maruti Suzuki, Tata Motors and Mahindra & Mahindra had stopped production for several days in May. These automakers, along with Honda Cars India, Skoda Auto, and Renault-Nissan Alliance, are planning another round of shutdowns ranging from four to ten days later this month for scheduled maintenance, reports suggest.
Maruti Suzuki, Honda Cars India and Skoda and Renault-Nissan said their production shutdown was planned. In a stock exchange filing, Mahindra & Mahindra noted that its production unit, Mahindra Vehicle Manufacturers, would observe 'no-production days' during five to 13 days during the first quarter of financial year 2019-2020. The Indian SUV maker said that there were enough stocks to cater to the market.
The production stoppages began after weak off-take slowed down sales across the board in the auto industry. By the beginning of June, more than half a million passenger vehicles worth $5 billion and 3 million two-wheelers worth $2.5 billion were laying unsold at the dealerships, reports showed.
The factory shutdowns are expected to cut industry output in the May-June period by 20-25 per cent. This will be of great relief to dealers that have been holding inventories as much as 50 per cent more than normal and have to pay GST even on unsold vehicles.
Slow job growth, coupled with rising fuel prices and liquidity crisis in the NBFC sector led to weak domestic demand. This led to most of the companies reporting a decline in sales during the past month.