Many Indian passenger vehicles makers like Maruti, Tata and Mahindra are shutting down production. These production shutdowns will extend for many days and in some cases, even weeks. This is owing to the massive unsold inventory.
It is estimated that more than 5 lakh units of passenger car are lying unsold in stockyards. This is worth more than Rs 35,000 crore. The two-wheeler situation is even worse with more than 30 lakh units lying unsold and valued at over Rs 17,000 crore.
The reason? Many factors play in this crisis. Skyrocketing fuel prices, slow job growth and even a liquidity crisis in the non-banking financial companies are some of the reasons. This crisis is existing from the past seven months.
Maruti Suzuki is shutting down its plant for the second time from June 23- June 30. Tata Motors’ Sanand plant will shut down from May 27- June 3. Honda Cars India is also following suit from June 4 – June 11. Other companies like Renault-Nissan will also shut down manufacturing for 4-10 days.
Reports by ET suggests these production shutdowns will account for a reduction of 20-25% in the May-June period. This is just about enough to reduce the current pressure on the overcrowded stockyards. The dealers are the worst hit from this situation as their inventory is 50% more than the normal. They also have to pay GST even on the unsold cars.
“What’s the point in producing and pushing stock when the offtake is weak. We have calibrated our production based on demand in May and we will do so in June too,” said Mayank Pareek, president of the passenger vehicle division at Tata Motors, speaking to Economic Times.