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Dead End: Car cos may go for production cuts

16-July-2005
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Dead End: Car cos may go for production cuts

The car mart's down with a flat tyre. Sluggish sales in June and the first-half of July may lead to production shutdowns. Already, the market leader Maruti has effected a day's production cut - apart from its routine maintenance shutdowns in June. Arch-rival Hyundai has decided to cut wholesale and dealer orders after average inventory climbed beyond the 25-day mark.

Analysts say the outlook for the car industry is not very rosy and expect a mere 7% growth in this fiscal year, compared to 18% in FY05. Flat car sales, confusion in emission norms in the truck market and labour unrest in the scooter and component business have collectively dampened the government's excise revenues from the sector.

Excise collections from the motor vehicle industry as a whole slid by around Rs 100 crore, with the government getting just around Rs 500 crore up to the end of May, compared to Rs 600 crore in the same period last year. Autocos are blaming everything from VAT to monsoon worries, floods in Gujarat and the new, steeper road tax in Delhi for their worries. But the real reason, say analysts, is the wholesale dumping by carmakers to buck a slowdown that began in January and has persisted right through the first six months of the calendar.

In the first-quarter of the current fiscal, for instance, car production grew at 17%, while sales increased by 8.2%. Even including utility vehicles, production growth at 16.6% is nearly double that of sales growth at 9.3%. u June sales slip 1%: P 4 auto

“Many carmakers dumped inventory in June to make up for Q1 volumes,” says an auto industry source. “So July will not be pretty.”

That would explain the level of discounts currently ruling in the marketplace. “There is an overall slowdown,” says the CEO of a volume carmaker. “Nothing else explains the negative dip twice in six months (first in February and now in June).”

Passenger car sales in the domestic market dropped to 64,046 units from 65,046 units in June, down 0.9%. Indeed, excluding Hyundai's unnatural growth in the first-quarter, which was thanks to a production skew last year, the Q1 growth has been totally flat. While some volume carmakers are reporting a retail pick-up in specific models, the overall inventory pile-up will likely dampen sales in the immediate future, say sources.

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