Sales down,Production cut

This could be the first sign of a major trouble in the automobile industry.

Written by Rajat Guha | Published: July 5, 2012 12:18:45 am

This could be the first sign of a major trouble in the automobile industry.

Hit by low sales on the back of rising petrol prices,high interest rates and an upward revision of excise duty by 2 percentage points in the Budget,car manufacturers are cutting down production to tackle their rising inventories and trimming staff.

Overall,the auto industry – which was operating at 70% of its capacity – brought it down to around 66% during May.

According to industry data,in the last one year the inventory for diesel vehicles has more than doubled to 107,000 units at the end of May. The inventory for petrol vehicles in May stood at around 193,000 units,marginally less than for the same month last year. This is because manufacturers have been producing lesser petrol variants than diesel.

Both the Society of Indian Automobile Manufacturers and auto analysts have projected a bad year ahead for the auto industry,especially the first six months of the fiscal. The majority of car purchases is financed through loans,so high interest rates act as a dampener to sales.

For the car industry,it is very important that the interest rates come down as 70% of sales are financed.

While car companies do go for their annual maintenance shutdown around this time of the year,the timing has been lucky for them this time around as rising inventories with dealers would have ensured that they stopped receiving cars.

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