By Pritish Raj
Tata Motors has cut by nearly 50% production of its hatchback Tiago and compact sedan Tigor since May, while also temporarily shutting down at least two production lines of commercial vehicles owing to high inventory at the dealers and little space left at the company stockyard, people aware of the development said.
The company manufactures the Tiago and Tigor models at its Sanand facility in Gujarat, while part of commercial vehicles are produced out of the Pune plant. The Sanand factory contributes 60% to the company's overall passenger vehicle production.
The decision comes following months of slowdown in auto sales, impacted by high prices and lack of optimum finance availability, leading to production cuts by major automakers, including Maruti Suzuki, Mahindra & Mahindra and Honda Cars India.
Tata Motors had produced more than required stock of Tiago and Tigor in the preceding months since they are one of the highest selling models from the company's stable.
Tata Motors produced 5,341 units of passenger cars in May, down 53% year-on-year (y-o-y), according to the Society of Indian Automobile Manufacturers (Siam) data. Domestic sales of the two models also slumped over 60% y-o-y in May.
While the June production data are not yet out, people aware of the company's plans said the production of the two models will be less than half and the same will continue till July-August period.
Tata Motors' domestic passenger vehicle wholesales, which includes passenger cars and utility vehicles fell sharply by 27% y-o-y in June.
For commercial vehicles, Tata Motors is not utilising two of its production lines and has also reduced the line speed and the number of shifts so that the output per day is lesser than normal, one of the persons said.
The production cut is being done primarily for medium and heavy commercial vehicles (M&HCVs) and the pick-up segment, for which demand is sluggish since November 2018 and excess units have piled up with the dealers and the company stockyard. Demand for M&HCV slipped after the government last year hiked the loading limit for CVs, as a result of which fleet operators got more bandwidth to load goods and new purchases are getting postpone.
When contacted, a Tata Motors spokesperson said the company’s focus is on retails and production plans across all six plants vary month-on-month, depending on the market dynamics. "Production cuts is a common phenomenon across the auto industry during such economic slowdown to ensure inventory management," the spokesperson told FE.
To clear inventory at the dealers' level, the company has significantly increased discounts on Tiago and Tigor. According to calculations by Axis Capital, discounts on Tiago has gone up to nearly `35,000 in June from `6,000 in January.
PV sales have been subdued since July 2018, firstly on account of Kerala floods and subsequently due to hike in insurance premiums from September. Thereafter, default by IL&FS and group firms led to severe crunch in the NBFC space and banks, too, became cautious in giving loans.
As a result, interest rates went up and demand for cars dipped, leading to increase in inventory levels at the dealers. Although most manufacturers have been cutting production since January, inventory is still higher than normal.