As the auto industry continues to reel under demand slump, the crisis seems to be only deepening and more and more manufacturers are taking step to cut down on production.
While Mahindra & Mahindra Ltd on Friday said it will be suspending automobile production for 8-14 days in the ongoing quarter (July-September) in various plants to align production with demand, Tata Motors said that it is going for adjustments in production and block closure in line with the slowdown in demand.
In a regulatory filing with the stock exchanges, Mahindra & Mahindra said that the company, at its Automotive Sector, and Mahindra Vehicle Manufacturers Limited, a wholly-owned subsidiary of the Company (“MVML”), as part of aligning its production with sales requirements, would be observing ‘’No Production Days’’ ranging between 8 – 14 days in various plants of the company and MVML during the second quarter of the financial year 2019-2020. M&M, however, maintained that “The management does not envisage any adverse impact on availability of vehicles in the market due to adequacy of vehicle stocks to serve the market requirements”.
Auto makers seek tax reliefs, re-look at new registration fees
Hit by falling sales, auto companies are on a bumpy ride. After a weak June quarter, they have reported a slump in sales in the ongoing September quarter, forcing companies like M&M to suspend production for some days. The industry, which constitutes 7.1 per cent of the GDP, is seeking measures like GST relief and a re-look at the registration fees which have gone up very substantially and a roll-back of the increases in road tax mandated by state governments after the introduction of GST. The sector is hoping for a revival in the forthcoming festival season and post monsoon demand.
Tata Motors has also gone for adjusting its production schedules. A company spokesperson said, “As indicated earlier, external environment remains challenging, leading to demand contraction. We have aligned our production to actual demand and adjusted the number of shifts and contractual manpower.”
Earlier, Tata Motors is learnt to have decided to close its Pantnagar facility in July for a couple of days in order to ensure improvement in productivity.
These steps are not in isolation. Maruti Suzuki has cut vehicle production for the last seven months, including in July 2019 in line with sharp 36.2 per cent drop in passenger car sales in July 2019. The company’s domestic sales in July stood at 98,210 units down from 154,150 units a year ago in July 2018. July’s MSIL sales was lowest since June 2017 when it sold 93,263 units.
Last month, Ashok Leyland shut its manufacturing plant in Pantnagar, Uttarakhand, for nine days until July 24 because of weak demand for commercial vehicles. The plant, which can manufacture 1.5 lakh units annually, was earlier closed intermittently for some seven days between June 17 and June 29.
The production cuts come at a time when the domestic auto industry has been going through one of the longest sales slumps. While leading automobile manufacturers announced a sharp decline of up to 50 per cent in their domestic sales in July, data sourced from Society of India Automobile Manufacturers (SIAM) shows that vehicle sale across all categories declined by 12.35 per cent to 60,85,406 units in between April and June 2019 against 69,42,742 units in same period of last year.
In a meeting with Finance Minister Nirmala Sitharaman on Wednesday, industry leaders, including Maruti Suzuki chairman R C Bhargava, M&M president—Automotive Sector Rajan Wadhera, who is also president of SIAM, along with representatives from components sector body ACMA and dealers body FADA drew attention to the challenges, including job losses, faced by the industry.
On Wednesday, M&M said that June quarter of FY20 was the fourth consecutive quarter of reduction (for passenger vehicle segment), the worst ever de-growth since Q3FY01. It said that the PV demand continues to be impacted by the slowing down of the overall economy, which along with tight credit conditions and delayed monsoon has impacted consumer sentiment in both urban and rural India, M&M had said on Wednesday.
While addressing the M&M annual general meeting on Wednesday, chairman Anand Mahindra called for cut in GST rates along with other measures to help the sector. Mahindra said, “I do believe that kick starting the auto industry with a few short-term measures will serve a greater national purpose. So, let me suggest a bit of first aid – simple short-term measures that would remove the immediate barriers to making autos affordable. The most obvious and welcome first aid would be some temporary relief on the GST front, either by modifying the slabs, or, if that is not possible, by removing the cess.”
“The paradox is that while the government needs to be lauded for its fiscal responsibility, the current slowdown in the auto industry poses a greater threat to the financial arithmetic,” he said.
“Think about it: According to SIAM estimates, the slowdown has resulted in an 8 per cent loss in GST collection in the first 6 months of 2019. Just to catch up with the FY19 GST collections, the auto industry will need to grow at a rate of at least 7 per cent in the remaining 8 months of the FY20.”
Stating that the auto sector constitutes 7.1 per cent of the GDP, and 49 per cent of the manufacturing GDP in India, Mahindra said that it supports almost 37 million jobs (including its value chain).