Auto Makers in India Shut Production As Unsold Stock Piles Up

Car and bike dealers have mounting stocks of unsold inventory owing to poor sales. 

(Photo Courtesy: The News Minute)

Car and bike manufacturers in India are resorting to shutting down production at their plants for a few days each month to reduce inventory build up at dealer stockyards. A slowdown in car and two-wheeler sales over the past few months has led to this move.

Among the top 10 car manufacturers, seven have announced plant shutdowns in May and June. These include the country’s largest car maker Maruti Suzuki as well as Mahindra and Tata among others.

According to a report in ET Auto, there is nearly Rs 35,000 crore worth of inventory or about 5 lakh cars lying unsold in dealer stockyards at the beginning of June. In two wheelers that number is close to 30 lakh bikes and scooters.

More than the issue of cars and bikes being unsold, is the financial impact by GST on dealers.

Dealers have to pay GST on their entire stock even if they are unsold. This is a burden and many resort to distress sales to get rid of stocks. 

Recently, a couple of Triumph dealers resorted to price cuts on its range of unsold bikes to clear stocks. Some Maruti dealers are offering huge discounts on slow-selling vehicles like the Ignis to get it out of stockyards.

To align production with the dwindling sales offtake, Mahindra informed the stock exchanges that it intends to cut five to 13 days of production in the first quarter (April-June period). Maruti, Skoda, Honda and others have also said they would shut their plants for between four and 10 days this month. Maruti’s production is down 18 percent compared to the previous year.

The ET report says that such moves by car makers can overall industry output by 20 percent to 25 percent. For consumers, who still aren’t buying enough cars, this can mean big discounts by some dealers who want to reduce inventory.

However, that doesn’t apply on some popular models that continue to have long waiting periods, which could get longer because of the shutdowns.

If you are in the market for a car or bike, this is the time to bargain hard.