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Honda, Hero MotoCorp cut India two-wheeler production amid slowing demand

Tighter credit, weak rural markets hurt scooter, motorcycle sales

Automotive demand in India has been cooling since July as Asia's third-largest economy faced a credit crunch and distress in rural markets.    © Reuters

MUMBAI (NewsRise) -- Hero MotoCorp and Honda Motorcycle and Scooter India are slashing production as the nation's top two-wheeler makers grapple with weak consumer demand and a credit crunch in a slowing economy.

According to a report in the Mint newspaper, Honda has put in place a 15%-20% reduction in June quarter two-wheeler production, its sharpest cut since starting operations in India about 18 years ago. The company does not have its own financial arm in India to offer credit to buyers, like rivals Hero MotoCorp and Bajaj Auto, the report said.

In March, Honda had cut production of its scooters and motorcycles by 67%, while sales slumped 47%, according to data from India's main automobile industry group Society of Indian Automobile Manufacturers or SIAM.

Automotive demand in India has been cooling since July as Asia's third-largest economy faced a credit crunch and distress in rural markets. Credit has tightened partly because of the lending curbs imposed on banks in a bid to reduce their bad loans.

The tightening cash at banks and weak consumer demand pushed the nation's gross domestic product growth to its slowest pace in five quarters at 6.6% in the three months through Dec. 31. The sustained slowdown had in March prompted Maruti Suzuki India, the nation's biggest carmaker, to slash production by 21%.

Liquidity, both for the consumer and the dealer, remained very tight in March, the Federation of Automobile Dealers Associations, or FADA, said in a statement last week. The operating cost of dealerships was at its peak owing to higher Inventory and selling costs, it added.

According to FADA, retail sales of two-wheelers grew 10% in February, even as dealers contend with 40 to 50 days of inventory.

Last week, Hero MotoCorp reported a 20% slump in March sales after the company said it has taken a "conscious effort" to bring down the inventory levels in the system. The SIAM data showed a production slump of 20% during this period.

"The on-the-ground sentiments of purchasers across auto segments are currently tepid, and we expect it to last at least until the general elections are over in May," brokerage Elara said in a report on Friday.

India's federal elections that kicked off on April 11 is set to last for 39 days over seven phases, culminating with the vote-counting on May 23.

"We believe that the worst for auto Industry is now behind us," FADA said, adding that it expects sales to stabilize in four to six weeks.

With India's Monetary Policy Committee cutting interest rates for the second time in three months last week, analysts are hoping for infusion of much-needed liquidity into the system, further boosting the consumer sentiment.

Last week, SIAM forecast a 5% to 7% increase in two-wheeler sales during this fiscal year that started April 1.

--Dhanya Ann Thoppil

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