Maruti Suzuki may reduce production by half as Covid-19 lockdowns hit sales

Maruti Suzuki India Ltd. may halve its production capacity as an overwhelming surge of coronavirus infections shutters some of its sales outlets in the South Asian nation.

The problem is on the “sales side because in several states there is a partial lockdown and there’s a curfew in some states and the dealers who sell the cars are having to close down," Maruti Chairman RC Bhargava said in an interview with Bloomberg Television on Tuesday. “Half the sales outlets are closed at the moment."

India’s largest carmaker was producing at full capacity before it also decided to shut some plants in order to divert oxygen to hospitals last week. “We should still be able to produce at 50% to 60% capacity," Bhargava said.

India is suffering the world’s most serious outbreak of Covid-19, with deaths hitting a record on Sunday and new cases above 350,000 daily. The resurgence in infections has sent some cities back into lockdown and shuttered businesses, dealing a blow to the world’s fourth-biggest car market, which had just begun to recover from its worst-ever sales slowdown.

New Delhi-based Maruti saw a decline of about 5% in orders over the past three days -- a sign the worsening pandemic is hitting consumer demand. Separately, the government has restricted use of medical-grade oxygen for non-medical purposes. While carmakers don’t use a lot of oxygen in their manufacturing processes, the gas is used in quite large quantities by some auto components makers.

Maruti isn’t the only carmaker feeling the pain. Hero MotoCorp Ltd, the world’s largest producer of two-wheelers, halted operations temporarily at all of its manufacturing facilities in response to a surge in Covid cases last month, while Ashok Leyland Ltd scaled down the operations of some of its plants, which are only expected to work for seven to 15 days in May.

Mahindra & Mahindra Ltd is also expecting supply chain-related production challenges and foresees some impact in the first quarter as a result of low customer movement and dealership activity, it said in an exchange filing over the weekend.

“If factory and city lockdowns extend to two months, then industry volumes will suffer a decline of around 5% to 7%," said Basudeb Banerjee, an analyst at Ambit Capital Pvt in Mumbai. “The auto industry contributes about 6% to GDP, it’s responsible for humongous job creation."

The global semiconductor shortage is weighing on the auto industry in India, too. Maruti is making “some adjustments" in its models due to the chip shortage and doesn’t see the crisis subsiding for another six months.

“Customers have been quite accommodating. They’ve been accepting models which use the chips that are available and they don’t insist on waiting for the cars till the chip situation changes," Bhargava said.

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