Maruti slashes output for fourth straight month in May

Despatches to dealers had fallen by 24 per cent y-o-y, among the steepest monthly declines in at least seven years.

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Maruti Suzuki chairman RC Bhargava had observed in April that demand typically tended to be weak during pre-election months and therefore, a revival in the April-June quarter was unlikely.

In a reflection of how weak consumer demand is, Maruti said it had cut production by over 18 per cent year-on-year (y-o-y) in May, the fourth consecutive month in which it trimmed output. Despatches to dealers had fallen by 24 per cent y-o-y, among the steepest monthly declines in at least seven years.

Market watchers said demand had flagged due to the increased prices of cars resulting from rising insurance premiums and hikes taken by manufacturers for new safety features. The muted demand has seen dealers stuck with high inventories.

In a stock exchange notice on Sunday, the country’s biggest car maker said it produced a total of 151,188 units last month. The cut has been the sharpest — 42 per cent y-o-y — in the mini segment, comprising cars like Alto and old WagonR with the company rolling out just 23,874 units.

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Models like the Baleno and Swift were somewhat less impacted with production of these cars pruned by about 10 per cent y-o-y. The least impacted segment was utility vehicles (UVS) where the output dipped by a little over 3 per cent.

Maruti Suzuki chairman RC Bhargava had observed in April that demand typically tended to be weak during pre-election months and therefore, a revival in the April-June quarter was unlikely. “For some reason, customers are postponing their purchases during the elections and that has hit retail demand,” Bhargava had said.

Maruti had cut output by 10 per cent in April while in March, the cut was just under 21 per cent. This was the steepest decline in volume-wise monthly production since 2014 and in sharp contrast to a positive trend seen in the past several years, including double-digit growth for the last four years. In February, the company had cut production by over 8 per cent y-o-y to 1,48,959 units.

While the company has been putting out official 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. While production normalised in January with sales picking up on the back of discounts, most dealers today are sitting on over 40 days of stocks.

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Several other manufacturers of passenger vehicles and two-wheelers too have been resorting to production cuts in the past four to five months to clear unsold inventory.

Mahindra & Mahindra said last week it would shut production across plants for up to 13 days in the current 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. Analysts said liquidity crunch in the system was also a factor constraining volume growth and that the weakness was likely to continue.

“FY2020 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. —FE