The prolonged sales slowdown in the auto industry and the oncoming of the BS6 emission norms have led to de-stocking in a bid to correct inventories. Major automakers like Maruti Suzuki, Hyundai and Mahindra have announced production shutdowns multiple times. In fact, Mahindra has now extended its plant shutdown by three days as there are already enough stock in the market to serve the demand. On August 9, 2019, the company had announced plant shutdown ranging from 8 – 14 days in various plants and now it’s been extended to 8 – 17 days.
In a Bombay Stock Exchange (BSE) filing the company mentioned, “We wish to inform you that the Company, as part of aligning its production with sales requirements, would he observing ‘No Production Days’ during the second quarter of the Financial Year 2019-2020 in various plants of the Company. In Automotive Sector the plant shutdown will range between 8 – 17 days i.e. additional 3 days as compared to the disclosure made on 9th August 2019. In Farm Equipment Sector the production shutdown will range between 1-3 days. The Management does not envisage any adverse impact on availability of vehicles in the market due to adequacy of vehicle stocks to serve the market requirements.”
Recent production cuts in the auto sector have fumed worries about job losses not only in the OEM business, but also in the component industry. As much as 10 lakh jobs are speculated to be at stake and automakers have reduced their inventory level to 21 days on an average as compared to an average of 90 days prior to the slowdown phase. The increasing productions cuts will only make situation even worse and hence the industry has been demanding some relief in GST rates, at least temporarily for the festive season. It would help to spur demand and automakers could make up for lost volumes which would help them to get further stock in place.
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