After Maruti, M&M too cuts output amid shrinking demand

Mahindra & Mahindra, India's largest maker of utility vehicles, will observe "no production days" at its automotive plants this month as demand for utility vehicles – which till recently was a market driver – has started slowing on the back of a rise in excise duty and increase in diesel prices.

"M&M, as part of aligning its production with sales requirements, would be observing 'no production days' at its automotive plants for periods ranging from one to eight days during the remaining period of July," the company said today.

M&M's subsidiary Mahindra Vehicle Manufacturers Ltd will also shut production for about eight days this month at its plant at Chakan near Pune, it added.

Maruti Suzuki India, the country's largest car-maker by sales, has already started declaring compulsory holidays at its plant in Manesar, cutting production of diesel engines as well as diesel cars following the slowdown in demand. The plant is now operating only two shifts instead of three.

The automobile industry in India, especially the passenger car and truck segments, has seen dwindling with even negative sales growth for over a year as customers postpone or cancel plans for new purchases amid expensive loans, rising fuel prices, and the overall economic slowdown amid near-unprecedented levels of inflation and a sinking rupee.

In more prosperous days, demand had shifted rapidly to diesel-driven utility vehicles from petrol cars due to the huge artificial gap between the retail prices of the two fuels, and companies rushed to launch new compact UVs like the Renault Duster, M&M's Quanto and Maruti Suzuki's Ertiga. But in the current economic scenarios, these are proving a drug on the market.

The appetite for utility vehicles has also been reduced by a hike in excise duty on UVs to 30 per cent from 27 per cent in the central budget for the current fiscal, and the partial de-regulation of diesel prices, which allows the oil marketing companies to raise prices in doses each month.

M&M's total sales in June declined 8 per cent year-on-year to 38,092 units. Sales of its passenger vehicles, which include utility vehicles and the Verito sedan, were down 13 per cent to 17,232 units.

The Fitch Group on Wednesday cut its outlook on the Indian auto industry to a rating of stable-to-negative from stable. It expects passenger vehicle volumes to drop 5-12 per cent in the current financial year.
 
M&M says that despite the cut in production, there is unlikely to be any adverse impact on availability of its vehicles due to enough inventory with showrooms.