Low demand leads to block closures and production stoppages by auto makers

Saturday 13 July 2013, 10:43 AM by

It is no secret that the Indian economy has been in a crisis for a while now, affecting the performance of a lot of industries. The Indian passenger car market, slated to be the third largest in the world by the year 2020, has been hit badly by this crisis, resulting in the worst slowdown for over a decade. Auto makers have been facing a lot of obstacles in the recent past in the form of slow demand, which has led to a lot of block closures.

This trend of non production days has become a regular feature of sorts for auto makers in the recent past. Such steps are being taken to decrease the amount of pressure of stock pile up. It has resulted in a capacity utilisation of 50-60 per cent, thereby, inevitably turning the heat on towards the bottom lines of these automotive firms. Severe blows have been dealt to both buyers and producers by the economic slowdown, which has led to hike in fuel prices and interest rates. This not only hampers the profit margins of auto makers, but it also instils a level of uncertainty in the minds of buyers, who are not definitive about their decision. Adding to this is the excise duty that has been levied on utility vehicles in the Budget.

Maruti Suzuki, General Motors, Toyota Kirloskar and Tata Motors have been constantly battling the slow demand, thereby failing to establish the right level of productivity. In addition to these, Mahindra & Mahindra had to resort to a block closure in order to be on the same page with demand. It has just been about a year when the Mahindra vehicles demanded a waiting list and the firm was growing by over 20 per cent. However, this move by the auto maker reflects its attempt to protect the bottom line by way of not carrying out production on certain days. To avoid a pile up at dealerships and stock yards, companies have shut down production for a colossal 50-60 days in the past months.

Speaking on the situation, Pravin Shah, the Chief Operating Officer of Mahindra & Mahindra, was quoted as saying, “The situation is certainly bad. The utility vehicle segment, which grew by 50% last fiscal, grew by just 5%.This is despite the addition of new models. The models, which got impacted by excise duty hike, have degrown by about 6-7 % at the end of first quarter. Unless and until there are positive measures, the pressure will continue, so the move to correct production was necessary.”

In moves made by other auto makers, General Motors India has made an adjustment of 15 per cent in its production in the past half year. The likes of Volkswagen and Tata Motors were compelled to schedule manufacturing on only five days in a week. RC Bhargava, the Chairman of Maruti Suzuki, made a valid point by justifying the shut downs and block closures. “The option is to work at our optimum for a lesser number of days in a week that we decide to work or work for the entire week and produce less. I think the former option is better since on the days we are not working, we can save on all the overheads of electricity, water, transport, canteen etc,” he said.

However, he was positive about the increasing demand during festive season. Elaborating on the same, he said, “In festive season, we usually see demand. We don't expect it to be a bumper season, but for sure there will be an upturn. People have not been buying for long, so we expect some of them will turn up.”

Popular Cars
Upcoming Cars