Auto companies continue to halt production to tackle slowdown

With India’s auto sales declining for the ninth straight month in July, more automotive manufacturers are laying off workers and temporarily halting production to keep costs in check, according to sources and documents seen by Reuters.

Japanese carmaker Toyota Motor and South Korea’s Hyundai Motor are the latest in a string of companies to briefly halt some parts of production at plants to combat slumping sales, according to company memos to employees, reviewed by Reuters.

Passenger vehicle sales in July fell at the fastest pace in nearly two decades. The sales declines have triggered major job cuts in India’s auto sector, with many companies forced to shut down factories for days and axe shifts.

Sources have told Reuters that even more companies have now begun to lay off temporary workers as the slowdown worsens.

Denso Corp’s India unit, which makes powertrain and air-conditioning systems for cars, has cut some temporary workers at its Manesar plant in north India, four sources familiar with the matter told Reuters.

A spokeswoman for Denso said the information was incorrect and declined to elaborate further. In a separate email, another company official disputed that the firm employed temporary workers at its Manesar plant. Bellsonica, which is part-owned by India’s biggest carmaker Maruti Suzuki and makes auto framework parts, has also let more than 350 workers go in Manesar, two sources said.

In an email, Bellsonica said the workers that had been let go were temporary workers, and most had been let go earlier in the year.

Reuters earlier this month reported automakers, component manufacturers and dealers had already cut 350,000 jobs.

In a meeting with India’s finance ministry on Aug.7, industry executives asked for tax cuts, and easier access to finance for dealers and buyers, in an effort to revive sales.

Toyota, in a notice, told its workers the company would halt production at its plants in Bengaluru “due to low market demand of vehicles” and high stock of about 7,000 vehicles.

N. Raja, deputy managing director, at Toyota’s India unit, told Reuters that while the company had a flexible production system it had to resort to five no-production days in August to prevent the build up of stock.

“The industry is deeply concerned with the reality of poor customer sentiment faced by the sector,” said Raja, adding he hoped the government would step in to support the industry.

Hyundai, in a memo on Aug.9, also said it would halt production for several days in August across various departments including the body shop and paint shop as well as its engine and transmission plants.

A Hyundai Motor India spokesman said the company expected sales to pick up in the festive season starting next month and added that the company had not laid off any workers.

Meanwhile, the Indian economy likely expanded at its slowest pace in more than five years in the April-June quarter, driven by weak investment growth and sluggish demand, according to economists polled by Reuters.

That would reinforce concerns seen in the minutes from the central bank’s August meeting, which showed policymakers were worried about weak growth and indicated further rate cuts in the next few months to boost the slowing economy.

The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7% in the June quarter, a touch slower than 5.8% in the preceding three months. But a large minority - about 40% of nearly 65 economists - expect an expansion of 5.6% or lower. If the forecast is realised, it would be the weakest start in the first three months of a fiscal year in seven years.

“The deceleration in growth that commenced in the second quarter of the fiscal year ending March 2019 is likely to have continued,” said Rini Sen, India economist at ANZ.

“A host of high frequency indicators - consumption and investment - have continued to weaken. The most prominent ones include auto sales, output of consumer durables, cement and steel production.”

Domestic passenger vehicle sales in July dived at the steepest pace in nearly two decades and declined for the ninth straight month in July, largely due to a liquidity crunch causing huge job cuts in the sector.

These measures, in addition to the risk of further escalation of the US and China trade war are weighing on demand and business confidence in India. The median response to an extra question in the poll, which was taken Aug21-26, showed the average growth rate for the current fiscal year 2019-2020 is likely to be 6.5% despite a weak start. But it is a downgrade from 6.8% predicted just last month and well below the RBI’s projection of 6.9%.

Reuters