Auto makers cut production as inventories pile up

Automobile manufacturers say it's back to 2008. Low sales and high inventory levels have forced manufacturers to cut production. But unlike the 2008 crisis, when the government intervened with an excise duty cut to give the sector a kicker.

This time there is no such hope. In fact if a proposal by petroleum minister Jaipal Reddy were to be accepted by the finance ministry, excise duty on diesel cars - which accounts for over 60% of total cars sold today could be hiked significantly.

No wonder inventory levels have been piling up. According to latest inventory levels shared by SIAM with finance ministry stockpiles of cars have reached a critical level in may 2012 - doubling from last year's levels. If the slowdown and uncertainty continues, automakers say they will have no choice but to cut production.

Pawan Goenka, president -Auto & Farm Equipment Sectors, M&M , says that "because of Inventory all automakers will adjust their production and shutdown plants if they have to inventory. Higher inventory in May that we have seen is because of their original plans but sales did not happen, you would probably see lower production in June and inventory coming down."

Tata Motors has lowered production of its two small cars - Nano and Indica - by 1/5th in June. Confirming the development a spokesperson for the company said that the cut was to align production with market demand.

Maruti Suzuki said last week its petrol production has come down by nearly a third. Ford, General Motors and Fiat India have all cut production by up to 25% last month.

After months of long waiting periods on practically every popular model the ground reality for the Indian auto sector has changed quite dramatically. Companies are now being very cautious and taking short term calls on production, which they say it makes long term projections very tricky. The sector is hoping for relief from the RBI and the oil ministry to turn things around.

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