M&M Plans Production Cuts To Cope With Lower Demand

Automobile sales have been at a low since the beginning of FY13. The slowdown has been across all segments, barring a couple of them like utility vehicles and light commercial vehicles. Hit by subdued macroeconomic cues, pressure on household spending and weak consumer sentiment, the automobile industry has been facing a massive demand slump.

Apart from demand issues, automobile companies are also grappling with labour tiffs and increasingly intensifying competition. A part of these issues is the problem of under-utilisation. The companies have capacities that catered to higher demand in the earlier years but are currently forced to operate at stunted levels.

To align production with demand, Mahindra & Mahindra announced that it would be observing ‘No Production Days’ at its automotive plants for periods ranging from 1-8 days during the remaining period of July 2013. One of its subsidiaries, Mahindra Vehicle Manufacturers would also be observing a total of 8 such days during July 2013 at its plant at Chakan.

Automobile companies usually carry an inventory of 4-6 weeks between their plants and dealerships. This ensures there are no constraints when it comes to supplies in case of temporary shutdowns. Of course, since this production downtime is being intentionally carried out to align production with demand in a better fashion, the question of the availability of vehicles being hampered doesn’t arise.

In recent times, we have seen similar moves from various automobile manufacturers. In the previous year, Toyota Kirloskar Motor, Maruti Suzuki and Tata Motors each undertook similar planned shutdowns. The scenario in the industry has been bad, of which the sales volumes figures have been indicator enough. With the capacities relatively higher, production cut-downs are bound to take place and there is no cause to panic over this development.

In the case of M&M, while utility vehicle sales have moderated, its tractor sales have shot up because of a good monsoon. This is enough to compensate for the slowdown in other segments and help the company maintain profitability.