Auto News

Carmakers cut production on falling demand

By Motortrend India Staff   |   22 November,2011

Domestic carmakers, facing the worst slowdown in five years due to rising cost of finance and fuel, are scaling down production to reduce inventory glut at dealerships.

While the country’s top carmaker Maruti Suzuki is set to end the fiscal with a 10 percent drop in output, rival Hyundai Motor India is shifting gears to increase exports to reduce inventory. Component makers, too, are feeling the heat, with several automakers cutting orders. Rising cost of fuel and loans has kept car buyers away, leading to four consecutive months of negative sales.

Last month, sales fell nearly 24 percent, forcing industry body Society of Indian Automobile Manufacturers to revise its sales growth forecast for the year to 2-4 percent, from 10-12 percent in October. This too, say top executives of some car companies, will be tough to meet.

“We had faced an unprecedented situation that led to significant drop in our production, which we are trying to make up now,” Maruti Suzuki managing executive officer (marketing & sales) Mayank Pareek said.

“But market conditions are getting stiffer as demand has shifted to diesel cars and our bulk sales come from compact petrol cars, so we may end the fiscal in a negative.” Maruti Suzuki, which makes popular hatchbacks Alto and WagonR and sedans DZire and Sx4, has cut production of the petrol variants of these models from August.

The company reported an 18 percent drop in output in the first seven months of the financial year after production was disrupted due to a series of crippling labour strikes at its Manesar plant. In 2010-11, the company reported a 24 percent y-o-y growth in production at 12,73,361 units.

Experts say the slowdown can end the three-year run of record growth in domestic car sales, which peaked at 38 percent in October last year.

Maruti’s closest rival, Hyundai Motor India, is increasing production for exports to beat the inventory pileup. “In view of the sluggishness in the domestic market, we have shifted some production to our export lines. We enjoy this flexibility as we export to around 120 countries,” Hyundai’s director (marketing and sales) Arvind Saxena said. The slowdown is being felt by component makers, too, who have been forced to reschedule production after several carmakers cut orders.

“Orders for this quarter have been cut by 20-25 percent by carmakers such as Volkswagen, Hyundai, Skoda and Nissan, but is more steep from Fiat India and Honda Siel Cars who have slashed production in a big way,” a Delhi-based vendor said. American carmaker General Motors, too, has cut production of the petrol variants of Aveo sedan and the Beat and Spark hatchbacks.

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