The production cut at Ashok Leyland’s plant in Chennai in force since the beginning of this month following the drastic slump in demand of over 50 per cent for commercial vehicles this year will soon be restored to normalcy.
The production cut of 3 working days a week was effected by Ashok Leyland across its plants in Ennore (Chennai), Hosur (Tamilnadu) and Alwar (Rajasthan).
The cuts were effected to help the company bring down its excess inventory levels to about a month’s supply. The company's domestic monthly sales is pegged at about 7,000 units, which has halved over the last three quarters.
“Once our inventory levels return to about a month’s supply by December we’ll get back to normalcy,” said R Seshasayee, MD of Ashok Leyland which is the second largest manufacturer of commercial vehicles in the country.
“Recovery will start from January. And it will be a progressive return,” Seshasayee said on sidelines of the World Economic Forum here.
The company, whose annual production capacity stands at about 84,000 units, is bullish that the current slowdown for medium and heavy commercial vehicles will reverse once the RBI measures take effect.
“It’s not so much the lack of demand for CVs as for vehicle financing. Our outlook for CV demand is positive. Once the Reserve Bank of India measures take effect, vehicle financing will improve,” he said.
The company is hopeful of a pick up in demand for CVs primarily from three quarters: the replacement market, increased vehicle financing and increased freight movement, following a pick up in manufacturing.
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“GDP growth for next year depends on the extent of the capital flows into the country. Sales of commercial vehicles are directly linked to this growth. We’ve witnessed good growth rates of commercial vehicles even when the GDP was between 4.5-5 per cent. Should this growth rate slow to 6.5-7 per cent next year, we’ll still do well,” said Seshasayee.
On the company’s joint venture with Nissan for the manufacture of light commercial vehicles (LCVs), Seshasayee said the partnership is on track.
“Except for the delay of about 6 months in the acquisition of land everything is on track. There’s no rethinking on the joint venture,” said Seshasayee, who expects the land issue to be sorted out next January. The first batch of vehicles will rollout by mid 2011.