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Maruti Suzuki India Cuts Output By 34% Amidst Sales Fall

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Maruti Suzuki chairman RC Bhargava had last month said production will follow the market demand, and employment is related to the production volumes.

A day after a massive reporting of 36% year-on- year drop in sales in the domestic market in August, Maruti Suzuki India on Monday said it has reduced output by 34% (y-o-y) during the month. This is its steepest drop so far in the seventh consecutive month of production cut to align output with reduced consumer demand.

With sales of automobile products across segments in the slow lane for the past straight 10 months now, almost all manufacturers of passenger vehicles and two-wheelers have been resorting to production cuts in the past 6-7 months to clear unsold inventory. In a stock exchange notice on Monday, Maruti said it produced a total of 111,370 units last month.

The cut has been the sharpest — 63% y-o-y — in the mini segment, comprising cars like Alto and old WagonR with the company rolling out just 13,814 units. The segment sales dipped 71% y-o-y at 10,123 units in August. Models like Baleno and Swift were also impacted with production of these cars pruned by about 34% y-o-y. For the first time in many years, production of utility vehicles (UVs) dipped by a little over 35%.

Maruti Suzuki chairman RC Bhargava had last month said production will follow the market demand, and employment is related to the production volumes. “Production is never steady in many industries and it depends on how the market behaves,” Bhargava had told FE.

Maruti had cut output by 25% y-o-y in July, while in June and May the cut was 15.6% and 18% y-o-y, respectively. The company had cut production by 10% in April while in March, the cut was just under 21%. Maruti had first cut production in February as dealers were saddled with inventory ranging from 45-60 days after Diwali last year when car sales lagged expectations, while most manufacturers continued to push stock to the dealers.

While the company has been putting out official production data since January, production cuts of nearly 30,000 units, are understood to have taken place in December 2018 too, as stocks had piled up after a subdued festive season. Even though production normalised in January with sales picking up slightly on the back of discounts, most dealers today are sitting on around 35 days of stocks.

As stated earlier, even other manufacturers have resorted to production cuts as the automobile industry is going through one of its roughest patches in the last 19 years. Mahindra & Mahindra had shut production across plants for up to 13 days in the April-June quarter and recently said it would shut production for 8-14 days in the July-September quarter to adjust stocks to market demand.

Others including Tata Motors, Honda Cars India and Renault-Nissan alliance have shut down their plants for anywhere between four and 10 days in May-June. The companies have been trimming output since January this year.

Several auto components makers, including Jamna Auto, Bosch had suspended production at manufacturing facilities due to poor demand from manufacturers. Analysts said liquidity crunch in the system was also a factor constraining volume growth and that the weakness was likely to continue. “FY20 could also be a challenging year for the sector due to transition to BS-VI norms from April 1, 2020,” analysts at Kotak Institutional Equities said.

Barring October last year, when sales went up 1.55%, passenger vehicle offtake has been in the negative zone in 13 of the last 14 months.