Automobile companies face festive season with low stocks

Car makers are headed straight into a problem they haven’t encountered in recent memory — inventories are set to fall short during the upcoming festival season, a time when sales traditionally surge.

That could worsen the already long waiting periods on popular models; some dealers may also try to hold on to inventories of select models now.

Typically, the Navratri period, which falls in early October this year, is considered the most auspicious for buying a car across large parts of India. Vehicle makers begin building up inventory for the season one-two months before it arrives.

But owing to chronic shortage of parts and production constraints at some original equipment makers, the situation is quite different this year.

Capacity constraint is most pronounced for the country’s largest car maker, Maruti Suzuki India, now.

Though it has been producing one lakh cars a month, or 1.2 million a year, on installed production capacity of a million units, supply shortfalls persist.

Inventories across India with its dealers are at best for a week to 10 days and the company has thrown up its hands in despair, saying it cannot produce more.

For companies such as Mahindra & Mahindra, the issue is lack of supplies of key components for some of its vehicles. M&M’s chief executive (automotive division) Rajesh Jejurikar told DNA Money, “We are facing shortfall in three areas: castings for engines, tyres and fuel injection pumps for some models. The castings shortfall will be met through exports and the situation for tyres is expected to improve shortly since new capacities are coming onstream in November and December. But for fuel injection pumps, we don’t expect a dramatic improvement in supplies in the next few months.”

Though M&M has decided to import some castings for the ‘M Hawk’ engines used in Scorpio to bridge supply shortfalls, it says it has been “losing” production of 1,500-2,000 vehicles a month, or about 6-7% of total sales volumes across cars and SUVs, because of supply shortfall from the component makers’ end.

As per a report by Sonal Gupta of UBS Investment Research, only about 39%, or four out of ten, vehicle dealers across the nation have inventories of over a month. Some dealers have taken measures to build inventories ahead of the festival but the overall inventory situation is less than satisfactory as of now.

“There seems to be some inventory built up by dealers in anticipation of the festival season. Around 39% of dealers reported more than four weeks of inventory. Some 67% of Hyundai, 60% of Tata Motors and none of the M&M dealers had more than four weeks of inventory,” she said.

As is clear from this survey, production constraints and consequent inventory level declines are particular to brands. Spokespersons for Hyundai Motor India, Tata Motors and General Motors India were emphatic that their companies are not facing any production constraint. A Tata Motors spokesperson pointed out that the “car capacity is appropriate. We have three lakh unit capacity in Pune, one lakh in Ranjangaon, which is shared with Fiat and another 2.5 lakh for Nano.”   

Ford India, which has seen unprecedented success with Figo, has recently begun a second shift at its Chennai facility. But GM India said it has not faced any production constraints.
It is interesting to note that despite price increases by most car makers, more than a third of the dealers surveyed by UBS said they expect sales to increase “by 5-15% or greater in the next 2 months.”