Factories that once churned out commercial and passenger vehicles at a feverish pace to meet growing demand, are now slowing down production as demand dramatically drops. This is the latest in an increasingly long list of complaints after the Indian government made its big demonisation move earlier in November. The Indian automotive sector has been particularly rattled by the move, with citizens reconsidering their plans to make big purchases as they continue to face cash woes. In certain cases, there has been an around 65% decrease in auto demand. In a bid to reduce high inventory levels, automakers have decided to revise their production operations. Inventory issues can be exceptionally costly in the automotive field, so this move makes sense.
Daimler, for instance, apparently had a three-day block leave with no production in November, and plans to have another one in the current week. Nissan and Renault have stopped their third shift of car production at their facilities in Oragadam, on the outskirts of Chennai. Meanwhile, several automakers have slowed down their production output, although the shifts remain unchanged. Both Nissan and Renault confirmed their production revisions, while Daimler declined to comment on the matter. While automakers are attempting to balance out supply and demand from the production end, things seem to be recovering at the showrooms. Inquiries and walk-ins appear to be picking up at major cities, although rural showrooms continue to see slow days, according to industry executives.
Despite the good news, it may take a while for demand levels to recover, especially since the cash crunch continues to consume most citizens’ minds. After the demonisation announcement, vehicle sales fell as much as 50% and showroom footfall dropped up to 80%. As of now, car sales have dropped around 15-20%. Two-wheeler and truck sales have dropped 40-50%. Industry experts believe that every sector in the Indian automotive industry will report sales declines in November 2016. The news comes shortly after sentiments were positive after a very good monsoon season. Still there is respite in a way to automakers. From a wholesale point of view, manufacturers may continue to see decent dispatch numbers after strong festive season sales in October. The impact will also differ between various sectors. For instance, utility vehicles and cars have not seen as big an impact in their demand, since very few customers pay such sums in cash.
Rakesh Srivastava, Hyundai Motor India‘s Senior Vice President of sales & marketing said, “Sentiment has got affected. The customer is diverted to reworking his or her finances. However, of late, the showrooms are seeing increased inquiries, but conversion is taking time. The situation is gradually getting normalized, and I see a good number of customers coming in by the month end, as yearend offers will also invite customers to close the sale.”
For now, it would seem like a full recovery for the automotive sector may take at least a few more months.