Hero Motocorp to Cut Production in September

According to news reported by ET, Country’s largest two wheeler manufacturers Hero Motocorp will cut production by 15-18% in the month of September compared to its average five months production of financial year 2012-13. The production cut will help company to normalize the inventory level at its plant and dealership. The company has seen slowdown in retail sales in the month of July and August and it expects it to continue in the month of September as well. The company will produce around 4.48 lakhs units in the month of September as per the production plan sent to vendors.

Demand for flagship model Splendor has reached all time low lever for the year 2012. The company will dispatch little over 1.20 lakh units of Splendor in the month of September compared to dispatch of 2.2 lakhs to 2.4 lakhs units during April to July 2012 period. The company dispatched around 1.73 lakhs units of Splendor in the month of August.

Pawan Munjal, MD & CEO of Hero Motocorp said “We have seen a slowdown in retail sales for the two-wheeler industry in July and August and it is expected to continue in September; so we are correcting production in order to avoid an inventory pile-up, which has been happening over the last few months. We have inventory stuck at our plants and with our dealers. We will ensure that there is sufficient stock available at the dealerships to leverage the high retail opportunity that comes with the festive season. All our brands are in good health, and we have a robust communication plan leading up to the festive season,”

It is to be noted that the slowdown in the two wheeler industry was started with the beginning of financial year 2012-13. Hero Motocorp continuously dispatched more units compared to retail sales during the period of April to July 2012. The company avoided the weak demand sentiment. It appears that the company anticipated that demand will peak up in the monsoon season. However, weak monsoon worsen the demand of two wheelers and left the company with historical high level of inventory. It also appears that there is shift of costumer to Honda Dream Yuga from Hero Splendor.

Compared to Hero Motocorp, Bajaj Auto and TVS Motors kept their inventory level in check and reported flat or negative sales during the period of April to August 2012. The sentiment for two wheeler demand will remain weak for the financial year 2012-13. The festive season may help companies to have some good sales but after that industry could face major slowdown in demand.

-Mahavir Kothari