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Maruti to cut production to balance with demand: Angel Broking

“In a surprising move, Maruti announced its decision to cut production of cars by 26% to just 126,000 units in March 2019 as compared to 172,000 units in March 2018. This announcement is a clear admission of the demand pressures that auto companies have been facing in the last few months. In fact, since the liquidity squeeze that manifested in October last year, the demand for consumer automobiles has been under consistent pressure.
Over the last few months, auto companies have seen a pile up of inventories and Maruti will be spending its efforts to clear the inventory backlog in the month of March this year. There have been some serious issues on the financing of vehicles after the NBFCs faced a severe liquidity crunch post the IL&FS default. In fact, the IL&FS default and the subsequent downgrade of NBFCs led to higher cost of funds for NBFCs and also a virtual drying up of funds at the short end of the market. The drying up of financing and the higher cost has also been instrumental in compressing demand.”

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