“At least for the next three to four months, the problems won’t get resolved.” – Pawan Goenka, President of Automotive and Tractor Operations, Mahindra & Mahindra Ltd (referring to widespread parts supply shortages in the Indian auto industry).
The doubling of per capita income in India over the last eight years has resulted in ever increasing demand for new cars. 2010 has witnessed a 30% increase in demand for new vehicles, with companies like Suzuki and VW resorting to waiting lists for prospective customers. Suzuki is claiming that they have a backlog equivalent to 15-20% of monthly sales volume.
At the dawn of the global economic meltdown, many Indian OEM suppliers conservatively curbed their growth in fear of reduced demand for parts. Combine the unprecedented increase in consumer demand with the overly cautious manufacturing approach that suppliers took in 2009, and the result is serious challenge for manufacturers unable to provide every customer with one of their vehicles.
Mahindra has operated under capacity since the end of 2009 when they began seeing vehicle demand increase, and realized that suppliers weren’t keeping up. In June alone, Mahindra saw an 8-10% loss of production due to parts shortages.
Mahindra still has at least a three to four month scramble ahead of them just to satisfy their own domestic demand for new SUV’s and pickups. It is unclear how this will affect the expected December launch of US compact diesel pickups (the TR20 and TR40).
If Mahindra were to begin diverting Indian (and other markets) parts and production to US market vehicles in order to meet their proclaimed December due date, they could potentially lose domestic sales to competitors by doing so. Mahindra may have to make a tough decision about which market is more important to them and which one they are willing to make sacrifices for; the thriving Indian market, or the unknown (but prestigious) US market.
Sources: LiveMint (WSJ), Bloomberg, Mahindra Planet, & Mahindra Planet