Passenger vehicle production in reverse gear

New Delhi: Slowdown pressures are building up in key segments of the Indian economy. The passenger vehicle segment—a crucial indicator of the mood of consumers —has seen its first production cut in the last two-and-a-half years as companies fight sluggish demand.

Production of passenger vehicles—that comprises cars, utility vehicles and vans—fell 5% in August to 234,093 units against 246,146 units in the same month last year. A reduction was last seen in February 2009 (-2%) amid the global economic recession. This move by the companies reflects the despondent mood and belief that the current slowdown will continue for some time. The cut in output indicates that the companies are not too optimistic about the festive season and are not keen to pile up heavy inventories.

    The production cut is a setback to India’s story as a bellwether of the global car industry, though many analysts feel this is a temporary phenomenon. But indications are not that rosy. Industry body Society of Indian Automobile Manufacturers (Siam) has already said that demand is likely to remain moderate for passenger vehicles and it may have to downwardly revise the sales outlook for this fiscal from the 10%-12% predicted earlier. The original growth forecast made by Siam was 16-18%, which was revised downwards recently.

    The output reduction follows dismal sales performance by the passenger vehicle industry, particularly for cars, that has been hit by poor demand as people refuse to go for new purchases due to high interest rates and petrol price. Pinching inflation and choppy stock markets have only added to the negative sentiment.

    Analysts said companies are being forced to cut production as they want to reduce the high inventory levels at dealerships. Companies which have reduced output in August include Maruti (-22%), Tata Motors (-27%), Honda Siel (-32%), Fiat (-54%) and Hindustan Motors (-54%). Only, General Motors’ output was up by 0.58% and Hyundai increased it by 2%. Maruti’s production at Manesar plant is affected due to a labour unrest. “The market has slowed down and demand has completely gone down. The good thing for GM is that we have a good demand for the Beat diesel compact that has kept us going,” said P Balendran, V-P at GM India.