India’s Auto Industry Cuts Production as Sales Sag

Carmakers in India are trimming output after wholesales plunged 20% to a five-year low of 239,300 units in May.

It was the worst year-on-year drop since September 2001, when factory sales fell 22%. The Society of Indian Automobile Manufacturers says the slump is affecting every major segment, from two-wheelers to commercial trucks.

SIAM reports that domestic retail sales of passenger cars plummeted 26% to 147,500 passenger vehicles last month. Wholesales from factories to dealers have been falling for seven months because of tighter consumer credit and a slump in demand in rural markets.

The Federation of Automobile Dealers Assn. reports that dealer inventories are 50%-60% above normal. Credit ratings agency CAREs Ratings estimates the stockpile at about 500,000 vehicles worth $5 billion.

Virtually all carmakers in India began staging partial plant shutdowns for 1-2 weeks in May and are continuing them this month. Market leader Maruti Suzuki India Ltd. says it cut production 18% to 151,200 units last month after its domestic sales plunged 25% to 123,300 units.

SIAM has asked India’s central government to address the “unprecedented” situation by lowering the country’s goods and services tax on all new vehicles to 18% from the current 28%.

Last month the trade group predicted the Indian market would begin to revive in July enough to deliver a 3%-5% gain in the fiscal year that began on April 1.