What green shoots? Auto majors to shut units after cheerless festival

Two days after Finance Minister P Chidambaram painted a somewhat rosy picture of the economy here is a bit of news that questions the veracity of his claims.

FP Editors December 20, 2014 23:44:49 IST
What green shoots? Auto majors to shut units after cheerless festival

Two days after Finance Minister P Chidambaram painted a somewhat rosy picture of the economy here is a bit of news that questions the veracity of his claims.

After the subdued sales during the festival season, some of the automakers have decided to extend shutdown of their units in Pune in order to realign their production to the high inventory levels, says a report in The Economic Times today.

The report says most of the automotive clusters in Pune will remain shut until 9 November. Some of them will be shut until 11 November. A select few have advanced their maintenance shutdown from December. The companies that have decided to remain shut for a longer period are Mahindra & Mahindra, Tata Motors, General Motors India and Volkswagen India, the report said.

The reason for this is that the companies had dispatched a higher number of vehicles to the dealers in anticipation of a spike in demand towards the last days of festival season. But this just did not happen, resulting in higher dealer inventory. Reports in the run-up to the festival season had suggested that dealers already had enough units to sell for eight weeks. So with the higher company dispatches and lower sales during the festival season, unsold stocks with dealers have increased.

What green shoots Auto majors to shut units after cheerless festival

Reuters.

Among models that have done well are the recently launched Ford Ecosport, Honda Amaze and Hyundai Grand i10. Amaze sales had helped the company register a 36 percent increase in sales during October.

None of the companies, however, are ready to admit that the extended shutdown is because of subdued festival sales. There was a rebound in sales during September and October. Probably, they do not want to kill the hope.

But the reality was that the improvement in sales has been just marginal. The sales during October crossed just 200,000, the ToI report said. Now that the festival season is over, the rest of the year is going to be worse.

Vehicle sales are an important indicator of the sentiment among the middle class. Subdued sales mean uncertainty is forcing potential customers to defer purchases.

Higher prices of essential items are throwing the household budgets out of gear. The middle class is spending more of daily items and saving less. In such a situation, it is the discretionary spends that are squeezed.

Adding to their worry is the fear of job loss. Another report in the same newspaper says the banking sector is gripped with the fear of an increase in delinquencies in their retail portfolio as the salaried class-their key customers in the segment-is facing job losses and delayed salary disbursals.

Citing a representation by Rupa Rege Nitsure of Bank of Baroda, the report says in the past 8-10 months there have been 200,000 job losses in various service sectors.

"With recent job loss stories, we need to be more careful. There are certain products within retail, including gold and commercial vehicle, which are already under stress," Jairam Sridharan, president and head of consumer lending and payments of Axis Bank, has been quoted as saying in the report.

The trend in the auto sector is a reflection of the situation in all other consumer goods segments.

Zyfin Research's consumer confidence index, which measures consumer sentiment across India, for October was at an all-time low of 39.0, reflecting pessimism on inflation, spending and employment.

"Deep pessimism among spenders who contribute to approximately 60% of the Indian GDP is a prime reason for the current economic slowdown," said Debopam Chaudhuri, VP Research, ZyFin Research, was quoted as saying in the press release.

In short, the green shoots that the finance minister saw were in the economic indicators. And these are far removed from the ground reality.

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