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How Bad Is The Auto Slowdown?

Amid reports of production cuts, here’s how bad the auto slowdown is...

An Eicher Motors Ltd. Royal Enfield Bullet 500 motorcycle stands on display at the company’s Enfield flagship dealership in Gurgaon (Photographer: Prashanth Vishwanathan/Bloomberg)
An Eicher Motors Ltd. Royal Enfield Bullet 500 motorcycle stands on display at the company’s Enfield flagship dealership in Gurgaon (Photographer: Prashanth Vishwanathan/Bloomberg)

Maruti Suzuki India Ltd. cut production as a prolonged slowdown since the festive season last year has left dealers saddled with excess inventory.

What points to the extent of sluggish demand is that the 8 percent production cut by India’s largest carmaker includes its bestsellers such as the Alto, Swift, Dzire and Vitara Brezza. While other automakers haven’t publicly announced cuts, they have spoken about “corrective measures”.

Sales fell across categories in February, according to dealers. Inventory is at an “unsustainable level” with new launches and discounts failing to help, affecting profitability of dealerships, BloombergQuint reported earlier.

How Bad Is The Auto Slowdown?

Data from Crisil underscores how bad the auto slowdown is.

Passenger Cars

The wholesales-to-production ratio for Maruti Suzuki and Mahindra & Mahindra Ltd. in the last few months fell below 1—implying that production is greater than dispatches—according to Crisil data.

How Bad Is The Auto Slowdown?

Toyota Kirloskar Motors told Bloomberg Quint that while the plant that makes Innova and Fortuner is running at full capacity, it’s increasing capacity utilisation of its other plant which manufactures car models such as Etios, Liva, Corolla, Yaris and the Camry hybrid.

Other carmakers either didn’t respond to BloombergQuint’s phone calls and emails.

Two-Wheelers

The wholesales-to-production ratio fell below 1 for two-wheeler makers as well, including Hero MotoCorp Ltd. and Eicher Motors Ltd.—the maker of Royal Enfield motorcycles—too.

How Bad Is The Auto Slowdown?

Ambit Capital in its survey found contraction in demand for two-wheelers. “Our channel checks across major markets like Maharashtra, Gujarat, Uttar Pradesh and West Bengal suggest entry and executive level bike demand has contracted by 10-15 percent since September 2018,” said Basudeb Banerjee, auto analyst at Ambit Capital.

The brokerage, in a March 20 note, said slower retail sales since September prompted Hero Moto to cut production. That will help reduce dealer inventories, which are currently at about 80 days, according to Ambit Capital.

Multiple media reports citing unnamed dealers also said that two-wheeler makers have indicated production cuts. But the companies including Hero Moto, in their responses to BloombergQuint, denied that.

How Bad Is The Auto Slowdown?

Bajaj Auto Ltd., in a recent interview to CNBC TV18, said the company has not scaled down manufacturing.

An Eicher Motors spokesperson told BloombergQuint that the production of its Royal Enfield motorcycles is order-driven. “Our dealer-inventory situation is not as bad as a typical commuter segment dealer and on the promotional front we are offering no discounts.”

Honda Motorcycle and Scooter India Pvt. Ltd. was more circumspect. It said in an emailed statement that the sluggish demand was visible from the start of festive season last year. “The two-wheeler industry is still facing headwinds in the market and we remain cautious for the coming quarter in view of the upcoming general elections.”