Amidst growing concerns about car sales and rising fuel prices, auto makers in India are considering cutting down the production of cars as the stock of unsold vehicles is growing by and large. The auto industry estimates that the collected inventories on 31 May were 3,00,912, which is considerably higher as compared to the collective car sales during the same period.
Dealers are of the opinion that despite cutting down the production of cars, the stock of unsold vehicles could be as large as 3.85 lacs, although the exact number will be clear only when the sales figures will be announced in the first week of July. A senior official of Maruti Suzuki India Ltd. (MSIL) said, “This is a tough time for the industry. Apart from the general slowdown, there is also lot of uncertainty about fuel pricing. Not just petrol cars, even diesel vehicles have taken a hit.”
He further added, “The situation may worsen as the economic sentiment remains weak and interest rates remain high. Buyers are postponing purchases. If the situation remains the same, auto makers have to further cut their production. We do not see any positive signs for the company in the coming two to three months.”
So as to lure the buyers, almost all the auto makers are offering huge discounts and giving add-ons. The manufacturers, in order to clear the stocks and reduce losses, are left with two options - either to offer more discounts or to downsize the production. The car makers and the distributors believe that this is the worst time for the industry since 2008.
Not only petrol cars but diesel cars, too, have shown a dip in the sales, mainly due to regular hikes in car prices and lack of discount on models. One out of every three unsold cars in the inventories today runs on diesel. The number of unsold diesel cars this year is twice the number of unsold diesel powered models as compared to the year-ago period.
Distributors believe that the situation is changing from bad to worse and if the interest rates are not cut down soon, the stock of unsold diesel cars would increase manifolds. A Volkswagen distributor said, “The slowdown is visible. The number of queries has gone down and even the potential buyers are postponing their decision. We do not see any relief before the festive season.”
The number of unsold vehicles for Tata Motors with 40,000 is maximum, followed by Mahindra & Mahindra at 24,200, while Maruti Suzuki's unsold inventories stand at approximately 22,400. Distributors said that Maruti Suzuki and Hyundai Motors have huge differences in the number of their unsold diesel and petrol cars, while in case of other companies like General Motors and Ford, this difference is not that significant.
High interest rates, accompanied by hike in petrol price, have come down heavily on the prospects of the domestic car market. The auto market in the month of May has grown at the slowest pace in the last seven months at less than 3 per cent. Difference in the sales volumes can be clearly seen from the data released by Society of Indian Automobile Manufacturers (SIAM). The data shows that sales in May 2012 were 1,63,229 units against 1,58,809 units in the same month last year. Clearly, the domestic auto market is in ailing health, leaving the manufacturers with downsizing as the only feasible option to improve conditions.
