Maruti Forced to Cut Production

Demand slowdown, inventory pile-up at dealers force move

OUR BUREAU NEW DELHI

    An inventory pile-up at its dealers has forced Maruti Suzuki, the country's largest car maker, to cut production this month as it grapples with a demand slowdown in the sector triggered largely by high interest rates and fuel prices.
Barring Swift and Dzire, the production of the high-volume Alto, WagonR, Estilo and Ritz has been reduced, Maruti chairman RC Bhargava told reporters on Friday. Maruti makes more than half the cars sold in the country.
“We are adjusting our production with market conditions. There are some models which are not moving fast enough given the sluggish demand. So, we have tweaked the production schedule to keep our inventory at the normal level,” Mr Bhargava said.
Car sales declined 16% in July, their first drop in two-and-half years, as rising interest rates and fuel prices forced customers to postpone purchases. The Reserve Bank has raised its key rate 11 times starting March 2010, pummeling demand. In India, some four-fifths of the cars sold are financed. Although Maruti is the first car company to formally announce an output cut, it had produced 17,000 fewer cars last month after it “rationalised” production between its Gurgaon and Manesar plants.
The carmaker sold 75,300 vehicles in July compared with 1,00,857 units a year earlier. The company has built enough buffer to meet market demand, which it expects to revive during the festive season, beginning September 1. “The current slowdown is short term and the demand is expected to revive during the festive season,” said Maruti managing executive officer (marketing & sales) Mayank Pareek. The company has internally cut its annual sales targets, expecting a single-digit growth for the year. The Society of Indian Automobile Manufacturers, the apex body of automakers, had projected growth of 16-18% for the rest of the fiscal, but has now revised it to 10-12%.
The company has, however, not changed its long-term plans and is looking at finalising the location for its new production facility in Gujarat by October, which would need an investment of about . 6,000 crore. Mr Bhargava said, “We have been looking at various sites for almost one year. Gujarat has an advantage as the Mundra port, where we have made substantial investment is located there.”
The company is looking at building a capacity of million cars a year. At present, it can roll out 1.3 million cars annually, which will go up to around 1.8 million cars by 2012-13 when the Indian car market is expected to reach about 4 million units.
Road Block
• Maruti’s car sales declined 16% in
July, its first drop in two-andhalf years

• Maruti had produced 17,000
fewer cars last month after it “rationalised” production between its Gurgaon and Manesar plants

• The company has built enough
buffer to meet market demand, which it expects to revive during the festive season, beginning September 1