Auto, tractor companies build inventory ahead of Diwali

Automobile and tractor manufacturers are stepping up production as they build inventory ahead of the main festivals, on hope that the momentum in demand seen since last month would pick up further ahead of Diwali.

Mumbai: Automobile and tractor manufacturers are stepping up production as they build inventory ahead of the main festivals, on hope that the momentum in demand seen since last month would pick up further ahead of Diwali.

Companies such as Maruti Suzuki, Hyundai Motor India, Mahindra & Mahindra and Toyota Kirloskar are going full steam ahead on building stock. The current inventory with dealers is lower than last year, so they are also ramping up capacity utilisation to have adequate stock during the festive season.

“Automakers are hesitant to give future projections, but are in a way preparing for the upcoming festive period,” Maruti Suzuki executive director Shashank Srivastava said. While the going is good, any re-imposition of local lockdowns could affect sales, he said.


Passenger vehicle sales rose in healthy double digits from a year earlier in August, which the industry attributed to demand for personal mobility amid the pandemic, strong rural buying as well as a base effect as sales were low last year. Manufacturers expect most of these factors to remain strong in the coming months and boost sales especially during Diwali, which is in mid-November this year. They are particularly upbeat about the rural sector, which has remained largely unscathed by the pandemic amid bumper crop production, remunerative prices to their produce and plentiful rains this year.

“With the two weeks’ delay in festive season this year, we are gearing up to build inventory and be ready to meet the festive demand," said Hemant Sikka, the president of Mahindra’s Farm Equipment business.

The company is working at 100% capacity utilisation for its tractors and hopes to ride the momentum. In August, its tractor sales rose 69% from a year earlier.
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In passenger vehicles, lower-end models continued to see the strongest demand, Srivastava of Maruti Suzuki said, suggesting the demand from rural areas and from middle-class families who are apprehensive of using public transport due to Covid-19 and are looking for personal mobility.

For passenger vehicles, the stock level at the beginning of this month was around 175,000 units, compared with 306,000 a year earlier. This is 25 days of inventory and ideally the industry should have stock for 30 days, said experts.

However, this year's rather prolonged inauspicious period of 45 days, till mid-October, when many people avoid high-value purchases, is providing room for manufacturers to build inventory before buyers return to the market.

Some automakers, however, feel that many buyers would not wait out the inauspicious period due to worries over the Covid-19 pandemic.
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"We see that the need is now for personal mobility and many customers may be in a hurry to have their vehicle and may not want to wait till Navratri to take delivery," Hyundai Motors India sales & marketing director Tarun Garg said.

The local unit of Korea’s Hyundai Motor currently operates its two plants near Chennai on three shifts and is seeing good traction for its models including the Venue and Creta.
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Meanwhile, component suppliers said production had reached pre-Covid levels in August and the order pipeline continued to be encouraging for them. Automobile dealers said the northern, central and western markets were expected to throw up the highest numbers this festival season.

Toyota Kirloskar has recently started its second shift, which was suspended since reopening post the lockdown, and is producing 300 cars a day. "We are seeing demand perking up and with one shift, we didn't want to starve the market,” Naveen Soni, its vice president of sales & marketing, said. “We felt it's better to create a 'safety' stock at our end.”

Dealers though said automakers should not abandon caution, as the Onam and Ganpati festivals did not throw up bumper volumes.

“While all mass volume players have started ramping up production, clearly the upcoming festival may not be able to take care of all the inventory build-up as dealers are in no position to carry too much inventory,” said Nikunj Sanghi, a leading automotive dealer. There is a build-up of inventory happening from August itself, he said.
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