Maruti Suzuki India Ltd (MSIL) has reportedly opted to ‘adjust’ its production levels in response to a slower-than-anticipated demand for cars. This adjustment comes as the company grapples with sales figures that have fallen short of expectations during the first quarter of the current fiscal year. This insight into the market’s performance was revealed by Suzuki Motor Corporation in their discussions with analysts, and the details were subsequently published by Business Standard.
Inventory Surge as Demand Slackens
Suzuki Motor Corporation elaborated, saying, “We are actively making adjustments to our production levels with the aim of reducing the current market stock, and we are closely monitoring demand trends. India is heading into a critical period with the upcoming festival season; hence, we will continue to meticulously track demand patterns.” It is worth noting that during Q1 FY25, Maruti Suzuki manufactured 496,000 vehicles, reflecting a 7.4 percent increase compared to the same period in the prior fiscal year. However, sales experienced a growth of just 1.2 percent, reaching 427,000 units. This disparity has contributed to an accumulation of inventory at dealerships.
Dealership Concerns
The combination of a general slowdown in car sales across all manufacturers and the resulting inventory buildup is causing apprehension among dealerships. The Federation of Automobile Dealers Associations (FADA) has taken the step of writing to the Society of Indian Automobile Manufacturers (SIAM) on two separate occasions to articulate these concerns. FADA reports that their dealer members are currently holding a combined inventory of close to 730,000 unsold vehicles. This quantity is estimated to be sufficient to cover more than 2 months of sales. In contrast, SIAM’s estimate is more conservative, placing the figure around 400,000 units.
Market Analysis
SMC is reported to have shared with analysts, “Typically, the Indian market experiences a somewhat slower first quarter compared to the rest of the year, but this year (demand) has been even slower than anticipated, largely attributed to the (Lok Sabha) election and unfavorable weather conditions, including heavy rainfall and heat waves. Given the increase in inventories, we are making the necessary adjustments…This year, the festival season commences in late August, a little earlier than last year, and the higher the demand, the greater the overall volume for the entire period.”
Potential for Increased Discounts for Car Buyers
The lower-than-projected demand has resulted in a substantial buildup of inventory. While the prospect of below-average demand during the festive season might have alleviated some of the pressure on dealerships, there are no immediate indications of a market recovery. In fact, there’s a possibility that new car sales could remain lower than initial estimates. To stimulate buyer interest, it is likely that both dealerships and car manufacturers will resort to offering attractive discounts and price reductions. Consequently, it is highly probable that car buyers will benefit from this sales slowdown.
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