Maruti Suzuki and Hyundai Motor consider 2nd shift, even as vendors struggle to get back

Mumbai: The nation’s top two carmakers, Maruti Suzuki and Hyundai Motor India, have already started planning for the second shift, even as they are getting ready to restart production lines after over a month and half. Component makers are also working overtime to restart factories, but delays in getting approvals […]

Mumbai: The nation’s top two carmakers, Maruti Suzuki and Hyundai Motor India, have already started planning for the second shift, even as they are getting ready to restart production lines after over a month and half.

Component makers are also working overtime to restart factories, but delays in getting approvals are causing hindrance in some states, especially in Maharashtra and Tamil Nadu that have the biggest automotive manufacturing hubs, industry insiders said. This, they said, could weigh on the plans of the automakers.

According to people in the know, Maruti Suzuki has got clearance to operate two shifts at its Gurgaon and Manesar plants, both in Haryana. Rival Hyundai Motor has alerted vendors that it intended to move into the second shift after May 18, they said.

With only a third of normal workforce being allowed per shift as part of the Covid-19 protocol to reopen factories, the output from one shift alone cannot justify opening up the entire plant, given the massive fixed cost. Hence the companies are compelled to look at the second shift, even as the supply chain gets ready to deliver parts and sales ecosystem opens up in a staggered fashion.

Maruti Suzuki on Wednesday announced that it would restart production on May 12. Hyundai has said it would resume production by the end of this week.

While there are issues in the supply chain in Maharashtra and Tamil Nadu, states such as Uttarakhand, Karnataka and Gujarat, which have a sound IT system, have started operating smoothly, the industry insiders said. In the National Capital Region, a majority of vendors have got clearance to open their factories by Tuesday evening. The challenge, though, is on getting the workers to the factory as many migrants have left for their hometowns.

Bajaj Auto managing director Rajiv Bajaj sounded disappointed with the progress made by Maharashtra in restarting factories.

“There is still confusion among the authorities in Maharashtra. Every authority seems intent on exercising its powers,” Bajaj told ET. “For example, collector issues one set of instructions, MIDC another, municipal commissioners make amendments for their areas, while local police station heads implement their own things in their jurisdiction.”

Bajaj has factories in both Maharashtra and Uttarakhand. According to him, things are much smoother and efficient in the northern state.

In Uttarakhand, the district magistrate issues the guidelines, and all others follow it. The online approval system was up in time and the approval is quick and comprehensive allowing for activities, including inbound/outbound logistics, warehousing operations and supporting activities by service providers.

Automotive Component Manufacturers Association director-general Vinnie Mehta, however, said the process of getting clearance to open the factory was gaining momentum, calling it a “gradual process”.

“No one is in a hurry, as the price is quite steep to pay if the plant has opened and parts are not available. The intent is to ensure that the entire chain is up and running, before one starts looking at a ramp up. As for preparedness is concerned, there is no slowing on that. Everyone is keen to start to ensure that the cash flow starts,” added Mehta.

VOLUME TO OFFSET COST

The fixed cost of carmaker in India is around 15-20% of the total expenditure.

In this scenario, production of the higher volume augers well for the auto company as it brings down fixed cost per unit and perks up the operating leverage to maximise operating profit margins.

Typically, the fixed cost per month for car maker is around Rs 7,000-9,000 per unit of the installed production base. Thus, a company typically require more than 50% of the production capacity to become operational to be commercially viable.

Source Article

Lois C. Ferrara

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