Auto cos slash production to drive through slowdown

Wednesday 11th September 2019 05:55 EDT

The crisis in the auto sector is deepening and leading companies are going for production cut to drive through the slowdown. Maruti Suzuki had an unprecedented full-day unscheduled shutdown at its Manesar plant in August, and is now following it up with two full no-production days on September 7 and 9, a move that company insiders call as “scary, and never seen before in the recent past.” Over-flowing inventory at factory premises, dealerships and external stockyards is making it difficult to find an empty location to park the fresh stock.

Rival Hyundai, which has been trying to balance the local slowdown by shoring up exports, also had to make “big adjustments” at its Chennai factory in August. The company has cut production of sedans and some small car models. The situation is equally challenging for others such as Tata Motors, Toyota, Mahindra & Mahindra and Honda Cars, all of whom have cut down production in line with the reality. “The situation is alarming, and we hope that the government comes out with some credible measures - such as GST rate cut - to help us tide over this difficult period,” Rajan Wadhera, CEO of Mahindra’s automotive business and president of industry body Siam, said.

Passenger vehicle business (car and SUV) is impacted not only by the economic slowdown, but also by other structural changes such as rising acceptance of shared mobility (Ola and Uber) and consumer nervousness over migration from BS4 to BS6.

Two-wheelers and commercial vehicles are also feeling the pinch. The volume-heavy two-wheeler segment, which gets 40-50% of its sales from rural markets and smaller cities, has seen factory output come down by10% in April-July 2019-20 period. Biggest maker Hero Moto, which had four no-production days in August, said “it partly reflected prevailing market demand scenario, apart from holidays.”

Jobs at factories, especially of temporary workforce, are being slashed. Maruti chairman R C Bhargava said recently some 3,000 temporary workers have lost employment as the company reduced output. “This is part of business. When demand soars, more contract workers are hired and reduced in case of low demand.” Nissan India also said recently that 1,700 workers may be laid off in India as part of global efforts to maintain profitability.

Industry officials say the slowdown in commercial vehicles also signals to liquidity squeeze and tough situation. “Commercial vehicles sales are barometer of the economy, and sales here have been dropped by 14% in April-July this fiscal. Production is down 17%,” a top industry CEO said.

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