In a very unusual move, Maruti Suzuki has decided to significantly boost production in the last two months of the year by as much as 36% even as most other players cut back on output to rein in inventory levels as they enter 2015. The market leader hopes to fill its low-running inventories in line with expectations of a jump in demand in the last two months — Maruti hopes purchases would rise in December if the government decides to end the excise cuts that have been in place since February this year.
Several sources told FE that Maruti has indicated production targets of 1.05 lakh units in November 2014 — up 12% y-o-y — and 1.10 lakh units in December 2014 — up 36% y-o-y. This is a reversal from the norm as carmakers usually reduce stocks at the end of the year as cars with manufacturing date of the previous year find it tougher to find buyers due to lower resale value.
“Maruti has increased production because all cars made till December will have a lower excise duty, and thus the price will be lower than cars made in January next year. If the cars are not sold, it will offer heavy discounts on them next year to attract buyers,” a source close to the development said.
A Maruti dealer added, “Last month (October) was really bad for us. We had a major shortage for the Dzire and WagonR. Even the Ciaz and Celerio are doing well, but these are new cars so buyers are willing to wait a bit.”
A company spokesperson confirmed plans to increase production, adding the output plans are in line with anticipated market demand. “If we see full Q3 of this fiscal, production is expected to be 10-12% higher than last year and in line with the annualised growth projection. In October 2014, we had fewer working days and so production was lower. The production in the balance two months in Q3 will partially make up for the shortfall,” the official said.
All other major car makers like Tata Motors, Hyundai and Mahindra have either maintained or cut production targets, and the only one, apart from Maruti, which is increasing production is Honda. But Honda’s reason is different — the company faces long wait periods for the City, Amaze and Mobilio.
While Maruti is optimistic on demand, some analysts warn that the company may end up being saddled with high dealer stocks, sometimes running up to almost 6-7 weeks, as was seen last year. FE had reported this in its edition dated March 13, 2013.
“We have faced the issues of high inventory earlier and that is not good for dealers. Now, we want to keep it at around four weeks,” Maruti chairman RC Bhargava had told FE in an interview earlier this month.