India's largest carmaker Maruti Suzuki, in a regulatory filing on Thursday, reported a production cut of 26 per cent in October this year to 1,34,779 units from 1,82,490 units in October 2020. This drop in production figures is not only hurting Maruti but also other auto players like Tata Motors and Mahindra & Mahindra (M&M) which are already bearing the brunt of issues like chip shortage and increase in raw material costs impacting vehicle production cycles. To add to that, India's Motown is now facing internal logistical issues due to a disruption in vehicle dispatch and transportation cycles.
Why is that? As a practice, automakers from manufacturing hubs like Maharashtra and Tamil Nadu used to send their containers to the North and to save on the idle return fare, Maruti being a major auto manufacturer in the North, would send its vehicles back to these hubs. In the West, Tata Motors and M&M have major manufacturing facilities in Pune and Nashik, respectively, while Hyundai India dispatches its cars out of Tamil Nadu. Maruti Suzuki, on the other hand, operates a plant in Gujarat, Manesar and Gurugram.
"It was a balancing act all over India. When Maruti used to do 2 lakh vehicles a month, any manufacturer from Maharashtra or Tamil Nadu sending vehicle to North had its return fare covered by Maruti delivering to Maharashtra or the South. But with production not being 100%, the return fare is getting disturbed and that is a bigger issue," said Vinkesh Gulati, President, FADA (Federation of Automobile Dealers Associations), an industry body which represents over 15,000 auto dealers across the country.
Maruti, in September, reported total production of 81,278 units, a decrease of 51 per cent year-on-year.
"Because now Maruti is not able to produce as much as it used to, they're trying to shift to railways and that's a major issue because the efficiency of railways is not as much as road transportation," he added.
Gulati told Business Today that once the vehicles are delivered at a railway station, they are then road-driven for 100-odd kilometers to reach the dealerships. "This takes a lot of time. Vehicle transferred by road transport used to come in 4-7 days. Today it takes 10-15 days. Once the vehicle gets dispatched from the plant, we normally inform customers that it will come in a week's time, but today 7th day we come to know that the vehicle is still lying at the railway station or en route. That issue is adding to the woes of what dealerships are already facing," he said.
To add to that, customers, who usually got their vehicles with 4-10 km speedometer reading, are now receiving them with a 100 or 150 km reading because the vehicle has been driven to the dealership from the railway station.
"Overall system was aligned. Whenever a trailer is booked for sending the vehicles, you cannot pay him both sides. If you pay him for both side, it will hurt the prices further which OEMs don't want to pay because they've build the vehicle to a price where the transportation cost has been included," Gulati explained.
He said that the industry has been facing these internal logistical issues for last 2-3 months because of an imbalance between the percentage decrease of manufacturing within Maruti and the industry. "Three months back, the industry was down 30 per cent, Maruti was also down 30 per cent. Tata Motors, for example, was having a problem because it was growing. In another month or two, Maruti will be back at the industry average of 15-20 per cent or maybe OEMs will learn how to manage the rail transport better as an alternative," he said.
Carmakers like Tata Motors saw strong sales during the festive season but these logistical issues could hurt them in the short-term, along with an added impact of semiconductor shortage in the longer term.
"In the 30-day festive period - starting from the 1st day of Navratri and ending with Diwali - our bookings witnessed a sharp growth of 84 per cent compared to the previous year's festive period. However, our supplies got adversely impacted due to the shortage of electronic components. Despite that, we posted a strong retail growth of 35 per cent. We are now left with high pending bookings, as we could retail only 52 per cent of the fresh bookings received during this period," Shailesh Chandra, President, PVBU, Tata Motors said.
Hyundai Motor India, too, said that the global semiconductor issue is affecting their deliveries and they expect the next few months to be better.
"We are aware of the automotive industry's rising concerns over semiconductor supply for vehicle manufacturing. It's a global issue and all key economies are facing this and not restricted to automobile industry alone. However, we are coordinating with our teams in Hyundai Motor Company and putting strong efforts towards creating possible solutions to meet our customer's demand," Tarun Garg, Director (sales, marketing and service), Hyundai Motor India said.
"We hope that in the next few months, we should be able to tide over the situation and give faster delivery to our customers," he added.
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