A backlog of 653,000 units: Carmakers stare at a long road to delivery

Passenger vehicle makers are staring at an order book in excess of 653,000 units — 2x-2.5x the monthly average sales, as they grapple with a mismatch in demand and supply.

Maruti Suzuki India accounts for half the aforementioned backlog. The car-market leader had bookings of 322,000 units as on Saturday, said Shashank Srivastava, senior executive director, Maruti Suzuki. The carmaker expects to clear the current bookings in two and a half months if there is no model or variant-wise constraint. It all depends on how many bookings it receives in the interim period, Srivastava said.

Others, too, have a swelling order book. Hyundai Motor India, the second-largest PV maker, has a backlog of 130,000 units, said Tarun Garg, director-sales and marketing at the firm. Mahindra and Mahindra, the SUV major, had an order backlog of 146,000 units, the company revealed earlier this month.

Even luxury carmakers have seen demand far outstrip the supply. Last week, Mercedes Benz India said it had an order book of 5,000 units. Other firms did not disclose the number of bookings. The estimated booking volume of the remaining carmakers is pegged to be in excess of 50,000 units.

A strong preference for personal mobility since the outbreak of the Covid pandemic, among other factors, has been fuelling passenger vehicle sales demand in the world’s fifth-largest auto market. But auto firms have not been able to tap the full potential, owing to a semiconductor shortage.

Year-on-year dispatches to dealers (counted as sales) declined during most of FY22. It's only in the past couple of months that the industry has seen a year-on-growth, with sales advancing 185 per cent in May and 19 per cent in June. Sales had declined 4 per cent YoY in April.

On the back of better availability of semiconductors and an improved sourcing strategy, passenger vehicle makers are now looking to keep production at full throttle. Looking to make the most of robust demand, most car manufacturers are operating over 95 per cent of their production capacity, said auto industry executives and component suppliers.

As they continue to grapple with long waiting periods across models, they are lending a sharper focus on assessing demand better and prioritising variants and models accordingly.

Maruti, among the worst impacted by the semiconductor shortage, is leading the ramp-up charge. The maker of Baleno and Brezza models plans to produce 188,000 passenger vehicles this month — most since 2018-19, said company suppliers familiar with the plan.

Srivastava said the company has been upping production every month with the easing of the semiconductor shortage. He declined to comment on the current month’s production plan.

Maruti’s production had plunged to as low as 40 per cent of plant capacity in September. It kept on improving in subsequent months -- to 60 per cent in October, 85 per cent in November, 91 per cent in December, 92 per cent in January and February, and 95 per cent in March, April, May and June. “There has been a consistent improvement but we are seeing a build-up of pending bookings," he said.

TSMC, the world’s largest contract chipmaker, plans to continue investing in less-advanced chips, such as the ones used in cars, Wall Street Journal reported last week. This even as demand for electronics that use the chips has moderated.

Less-advanced chips were the products that TSMC didn’t traditionally emphasize when compared with its cutting-edge chips, but their importance to the industry has been growing as demand for such chips expands, reported the Journal.

An intensifying competition that is being fuelled by new model launches, an upcoming festive season, and the likelihood of a further increase in ownership costs may prompt potential buyers to change their minds and postpone car purchasing decisions, cautions Puneet Gupta, director, S&P Global Mobility and Automotive Sales Forecast India & Asean.

This means that companies cannot take any chances and have no option but to ramp up production at an accelerated pace. “This is particularly true for companies, such as Maruti, which have seen a sharp erosion in their market share,” said Gupta.

Owing to long waiting periods which may stretch up to 18 months for select models and their variants, the topmost buying criterion now seems to be availability, rather than a particular trim or colour, or in some cases, even brand, said a dealer of a popular car brand.

Even as demand remains strong, automakers are treading with caution and are keeping a close eye on the so-called ‘red flags’ like high interest rates, any potential disruption from Covid-19, supply chain issues, and a creeping cost of acquisition either because of the regulatory changes or hardening of interest rates.

In a bid to tame inflation, the Reserve Bank of India has taken a cumulative hike of 130 basis points in effective policy rates. It’s likely to continue with rate hikes in the months ahead and this shall increase the cost of borrowing and deter buyers from new purchases.

So far, with the exception of entry-level cars which clearly reflect the impact of inflation, most segments have remained resilient. But that’s no reason to cheer, said Srivastava. The real demand scenario will emerge only after production across the industry meets demand.

“When you have pending bookings, you tend to absorb the downturn in demand as you keep producing. It’s the fresh demand that one has to watch out for. We’ll get to know that only after the production increases across the country,” said Srivastava. Despite all the limitations, for the first time, the industry has seen passenger vehicle sales cross 900,000 units for two consecutive quarters, he added.