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‘Sales Are Falling Month After Month’: Maruti Slashes Car Production By 26.8%

Not the best news for India’s economy.

Maruti Suzuki India has reportedly slashed car production by 26.8 per cent, over March last year due to fall in demand.

Shally Seth Mohile of the Business Standard reported, citing people aware of the company’s plans, that Maruti is estimated to have cut production to around 126,000 units as compared to more than 172,000 units a year ago.

The article reported that the cuts come in the face of struggling sales numbers. In the 11 months from April to February, Maruti’s domestic sales grew a mere 6.7 per cent.

Meanwhile, shares of Maruti Suzuki India (MSIL) dipped four per cent to Rs 6,780 on the Bombay Stock Exchange in early morning trade, based on the reports of production cuts.

Business Standard reported that the production cut is in response to uncertainties in demand before Lok Sabha elections and stricter emission norms which come into effect on April 1 next year. When reached out by Business Standard, a spokesperson for the company declined to comment.

As per the report, production in March 2019 production is the lowest since March 2015, according to the production data provided by Maruti.

The report states that Indian auto companies consider despatches to dealers as sales. Most of the growth in sales was seen in the first quarter of 2018-19 when it stood around 14 per cent each month. Since June 2018, sales have been in low single digits every month.

A Maruti Suzuki supplier told Business Standard, “Whatever was planned six months ago has not worked and sales have been falling month after month. In a departure from the earlier plan of closing the year with 2 million units, the company may just do 1.87 million as the second half has been flat…”

Mahantesh Sabarad, head, retail research, SBICAP Securities, reportedly said that the slash in production is “a sign of large system inventories that a production cut is necessitated. However, what is alarming is that the company is struggling with inventories for close to six months now.”

The article cites that a combination of factors— including tightening credit norms by financiers after the Infrastructure Leasing & Financial Services (IL&FS) crisis, higher ownership costs, slower economic growth, and a volatile stock market— have contributed to sluggish sales.

Between April and February, sales of passenger vehicles in India advanced by 3.3 per cent to 3.09 million units over the same period a year ago, according to Siam.

A top official at an auto component maker told Business Standard that every other two-wheeler and car company has been reducing production to brace for the lull in demand and pile of unsold stocks.

Mitul Shah, vice-president, research, Reliance Securities, told Business Standard, “India’s passenger vehicle market is facing a challenging business environment, with urban sales declining and rural sales growth coming close to single digits in the past few months. A few regions witnessed a higher monsoon deficit, impacting the rural economy, which, in turn, has dragged down demand over the last four to five months.”

Also read: Industrial Output Growth Slows Down to 1.7% in January

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