Piled-up inventory: A major cause of concern for car makers

Monday 09 December 2013, 12:25 PM by

The auto industry's post-Diwali sluggishness in the form of piled-up inventory at dealerships and factories is a worrying sign as the new year in just around the corner. According to an estimate, the piled-up inventory has a colossal net worth of Rs. 20,000 crore. Due to this piled-up stock, auto makers like Maruti Suzuki and General Motors India have either opted to cut the production or go for plant shut-downs, according to a report by TNN. The measure has being taken into account in order to avoid carrying forward 2013 stock into the new year 2014.

Ashok Khanna, Senior Executive Vice-president and Business Head, Vehicle Loans, HDFC Bank, said. “The current inventory levels are 45-60 days, which are very high.” A top industry source, voicing the same concern, commented, “Calculating an average car's price of around Rs. 6 lakh, the value of total stocks waiting at factories or dealerships is more than Rs. 20,000 crore.” According to dealer sources, the festive season did not meet expectations and November 2013 too been sluggish in terms of car sales. Some industry experts have a common opinion that this is certainly not a good sign for the Indian automobile industry and these problems may continue even in 2014.

The piled-up inventory at factories and dealerships, in a way, has forced Maruti Suzuki to go for a plant shut-down in December 2013. Mayank Pareek, Chief Operating Officer - Marketing and Sales, Maruti Suzuki, reportedly said, “Typically, Diwali is a retail peak and November is always sluggish so the inventory build-up follows that curve. The December sales spurt will clear out the inventory before the new year. Like every year, we are going for a shut-down in December, which is part of our bi-yearly planned shut-downs. Maruti's current inventory level is just over six weeks, which will come down to 3-3.5 weeks by January 1.”

Just like Maruti Suzuki, General Motors India, too, has gone for a production cut. As a matter of fact, the auto company has scheduled a five-day working week at its Talegaon facility. P Balendran, Company Spokesman, said, “Talegaon is running a five-day week for past two months as we adjusted our production to match demand so our inventory level is four weeks.” GM India has produced 82000 units till date this year as against 92435 units in the last year. Pravin Shah, Chief Executive at Auto Division of Mahindra & Mahindra, said that the company currently holds around 'four weeks' inventory. He also added that for some 'sluggish models', the inventory holding is 'around five weeks'.