With retail sales not picking up, Mahindra & Mahindra (M&M) has extended its plant shutdown period by three days as demand remains weak and inventory at dealers is still higher than normal. The company had last month announced it would keep its plants shut for 8 to 14 days in the July-September quarter. In a stock exchange filing, the Mumbai-based automaker said its automotive sector plants will be shut for an additional three days, while the farm equipment manufacturing plants will be shut for one-three days. This is the second consecutive quarter in which M&M will be trimming production, following no production days for up to 13 days in April-June.
The announcement comes days after managing director Pawan Goenka warned of job losses if demand doesn’t revive immediately.
“My worry is that if the industry does not turn back on a positive growth for the remaining part of the months this fiscal year, you may see more layoffs,” Goenka had said, while stressing that a GST cut before the festive season will help in revival of demand.
Retail sales continue to be in the slow lane, leaving dealers saddled with high inventory, while company stockyards are also short of space. This has reduced dealers’ ability to take further stock, prompting manufacturers to shut down plant and cut production.
Earlier this month, Maruti Suzuki announced it will shut down operations at its Gurgaon and Manesar plants for two days — September 7 and 9 — following a 36% year-on-year (y-o-y) decline in despatches, which was the 10th consecutive month of decline. Separately, Tata Motors said it will continue block closures at its Pune plant in the first week of September.In the April-June quarter too, Maruti Suzuki, Toyota, Honda Cars India and Tata Motors had cut production by 7-18% year-on-year (y-o-y).
M&M said it does not envisage any adverse impact on the availability of vehicles since there was adequate stock. In the April-August period, M&M’s passenger vehicles sales dipped 10.28% y-o-y to 89,733 units, while commercial vehicle sales dipped 15% y-o-y. Overall, while sales of PVs declined 24% y-o-y in August, the worst ever fall, sales of commercial vehicles fell over 19% y-o-y. Two-wheeler makers Hero MotoCorp, Honda Motorcycle, TVS Motor Co and Royal Enfield had also cut production due to high inventory at the dealers.
The cut in production levels started in January-February after a pile-up in stocks, post a dull festive demand. Demand for cars and two-wheelers has remained subdued since H2FY19 on account of rise in insurance premium and costlier finance, post the NBFC crisis triggered by defaults of IL&FS and DHFL. NBFCs, which used to fund nearly 60% of CVs and over 40% of passenger cars, have been strapped for liquidity.
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Source: Financial Express