Source: The Economic Times, Dec 09, 2016
MUMBAI: It’s that time of the year when automakers suspend production for a few days to carry out factory maintenance. This time around, though, the shutdowns will be longer at least for some, with insiders putting the blame on demonetisation that they say led a fast growing industry to come into a screeching halt.
Maruti Suzuki, Hyundai Motor, Honda Motor, Mahindra & Mahindra, Ford Motor and Renault-Nissan have scheduled shutdowns stretching from a week to as much as 15 days over this month and the next. While Maruti and Hyundai Motor India said these were as per previous plans and not a result of demonetisation, the likes of Honda Cars India and Mahindra are suspending production for several days to correct inventory as demand is slow and their products are moving out of dealerships at a slower than normal pace.
Few automakers have remained unaffected by the cash crunch caused by demonetisation, as potential buyers postponed, if not scrapped, their purchase plans since the dramatic government announcement on November 8. Loan disbursals, too, have slowed down as bank staff are busy dealing with the cash situation.
The auto industry doesn’t anymore expect to post double-digit sales growth that it was hoping to achieve this fiscal year. In November, passenger vehicle sales grew just 1.8%, the slowest in many months.
Long backlogs for popular models are still helping companies such as Maruti, Hyundai, Tata Motors, Toyota Motor and Renault to keep production steady, while for Volkswagen, Nissan and General Motors, strong exports have helped partly offset the local slowdown. For the rest, adjusting production has become inevitable.
“Demonetisation completely stalled the market for a couple of weeks, which led to increased inventory and the only way to correct the inventory is through production cuts and plant shutdowns,” said Rakesh Batra, partner at consultancy firm EY. “Instead of giving higher discount later (to clear inventory), carmakers and dealers want to end the year with adequate inventory to start the New Year on a better note financially.”Honda has planned four non-production days at both its India plants this month, and the Japanese company’s local unit chief indicated that it may take more such steps if the situation warrants so.
“The market prospects are not clear,” said Yoichiro Ueno, managing director of Honda Cars India. “We are carefully monitoring it and will take necessary production alignment in case we judge it is necessary.”
Ueno believes the current slowdown is mainly due to postponement of purchases that would eventually return to the market. There will be incremental sales in the future when the cash situation improves, he said. However, it is difficult to forecast by when it would happen.
Mahindra, the maker of the Bolero and Scorpio SUVs, has suspended production at its Chakan and Haridwar plants for a week starting December 3, and is operating the Nashik factory in one shift, instead of the usual two. The company is likely to shut down all its factories in the last week of December for maintenance, said people in the know.
Mahindra is one of the worst hit automakers by demonetisation. Rural India, where cash transactions are high, accounts for a chunk of its sales, especially for the top selling Bolero. It expects December volume to fall as much as 30% from previous expectations, said people with knowledge of the matter.
The company didn’t respond to an email seeking comment.
Ford India has taken advantage of the situation to retool its Maraimalai Nagar plant on the outskirts of Chennai to make the new EcoSport compact SUV, people in the know said. It is likely to keep the plant shut from December 18 to January 5.
A company spokesperson, however, asserted that the shutdown was not resulted by demonetisation.
“I would not read too much into the regular maintenance shutdown, given automakers are already committed to producing as per their annual plans. Demonetisation is certainly having an impact, however the true results will only come after 10 days — after the inventory is consumed at dealerships,” said the spokesperson.