The auto companies have been forced to defer inauguration of new factories as well as new manufacturing lines to avoid oversupply in the market and save on costs. We look at how Ashok Leyland, Suzuki and Honda have been affected
Hit by the Covid-19-induced lockdown, auto companies have been forced to defer inauguration of new factories as well as new manufacturing lines to avoid oversupply in the market and save on costs.
Though market trends in the past 2-3 weeks suggest an uptick in demand at the retail level, sales are still on the lower side and this is forcing companies to go cautious on new production capacity addition. Oversupply will put pressure on the already stressed dealer community as well as add a variety of costs.
The inauguration of a Rs 170 crore bus manufacturing plant by Chennai-based Ashok Leyland in Andhra Pradesh has been kept on hold following the slowdown in demand.
“The plant is ready but it depends on market demand, which will determine when we start operating it. Production will depend on demand,” Vipin Sondhi, Managing Director, Ashok Leyland, told Moneycontrol in an interaction.
According to data provided by the Society of Indian Automobile Manufacturers (SIAM), the medium and heavy bus segment, where Ashok Leyland is the leader with a share of 45 percent, recorded sales growth of just 2 percent in FY20.
During the recently concluded quarter ended June, volumes in this bus segment crashed 98 percent. This was because of lockdown rules preventing free movement of passengers as well as regulations such as a cap on the number of passengers boarding a bus.
Suzuki Motor Corporation (SMC), the parent of car market leader Maruti Suzuki (MSIL), has decided to delay the start of production at its third plant, in Gujarat, by more than six months. The plant, which is ready, was originally supposed to commence operations in June but will now start in 2021.
The new plant would have added 250,000 units per year to the SMC and MSIL aggregate annual tally of 2.05 million units. However, looking at the production trends in July, both the entities will not exceed 70 percent of their peak production capacity.
The Gujarat plant is operating with a single shift and plans are afoot to start a second shift in August-September, according to Rahul Bharti, Senior VP, corporate planning and government affairs, Maruti Suzuki, while addressing analysts on July 29.
The passenger vehicle segment slumped 50 percent in June (78 percent in the June quarter), while MSIL recorded a fall of 50 percent in June (80 percent in the quarter), as per SIAM data.
Honda Motorcycle and Scooter
Honda Motorcycle and Scooter India (HMSI), the country’s second largest two-wheeler maker, has decided to delay commissioning of its third assembly line in Gujarat. This new line, which is ready for production, would have added 600,000 units annually to its total yearly tally of 6.4 million units.
However, by the end of June, HMSI was utilising less than 20 percent of its total installed capacity. Like its peers HMSI, also witnessed a rise in retail sales in July, which, sources said, had reached 85-90 percent of their pre-Covid-19 levels.
The two-wheeler industry contracted 39 percent in June (74 percent in the June quarter), while HMSI’s volumes fell 55 percent (81 percent in the June quarter).
Following the uncertainty brought about by the pandemic, almost every automaker has decided to cut down on its capital expenditure (capex) for the year. Some of this is related to augmenting production capacity and developing new models.