Carmakers have slashed production during the festival season for the first time in a decade as rising interest rates and fuel prices have led to a pileup of unsold vehicles.
While the domestic auto industry raced to a growth of more than 30 percent during September-October last year, the expectations are muted this time round as demand is slowing down in the auto sector, reflecting and exacerbating the larger economic malaise.
Three of the largest carmakers, Maruti Suzuki, Tata Motors and Hyundai Motor have scaled down production, top component suppliers were quoted.
Departing from its usual practice of ramping up production during the festival season, the country’s leading carmaker Maruti Suzuki has cut production by 10-20 percent depending on the models. The move comes even as the company faces a major downslide in production because of the ongoing labour unrest at its Manesar plant which has led to higher inventories than the industry average of 15,000-20,000 vehicles. Tata Motors, too, has realigned its production while Hyundai India has resorted to exporting cars produced for the domestic market.
A senior Maruti Suzuki official on the condition of anonymity has been quoted that the company is open to increasing production soon if it sees an uptick in demand. “Yes, we have corrected our production because we do not want inventories to pile up. We are meeting every fortnight and we will increase production depending on the demand,” the official said.
P Balendran, vice-president, General Motors India, said carmakers generally see a growth of 20 percent or more in volumes during the festival season. However, he added, “Now, with unprecedented hike in interest rates, hike in petrol prices, high inflation, and negative market sentiments we are not expecting incremental volume of more than 5 percent during this festival season.”
Nearly 70 percent of cars are sold on credit and interest rates have soared nearly 300 basis points over the past year and a half. Petrol cars comprise a whopping 90 percent of unsold vehicles as the price gap between petrol and diesel has widened to almost Rs 25 per litre. Even as the demand for diesel cars is growing, carmakers are finding it difficult to sell petrol models despite offering attractive freebies.
It is a double whammy for Maruti Suzuki, which is facing a pile up of unsold cars even as it is being forced to keep 90,000 customers on hold for its hatchback Swift. The company’s functional Gurgaon plant is churning out mainly petrol models which are not selling while the Manesar plant, which manufactures the Swift, is in the grip of labour unrest.