Mumbai: India’s second largest maker of trucks, buses and other commercial vehicles by sales, Ashok Leyland Ltd has decided to halve the number of days its factories will produce vehicles to three a week, a day after its bigger rival, Tata Motors Ltd announced a three-day shutdown at its Jamshedpur unit to keep inventory levels in check.

The Chennai-headquartered Ashok Leyland said in a statement that during the last few weeks, demand for heavy duty commercial vehicles has fallen owing to inadequate funds for buyers and high interest costs. That has led it to moderate production for the next two months until December-end, the company said.

The decision, the auto maker added, has also been partially influenced by problems encountered by its suppliers as a result of power shortage in some parts of the country. Vinod Dasari, the firm’s chief operating officer, said it hopes the demand to rebound by January 2009.

No credit: An Ashok Leyland dumper. Some 95% of commercial vehicles sold in the country are bought or leased with the backing of vehicle finance. Ramesh Pathania / Mint

Ashok Leyland reported an overall drop of of 50.2% in its sales in the same period.

Even Eicher Motors Ltd, the third largest player in terms of sales, reported an overall decline of 79% in its domestic sales in September to 1,552 units from 2,539 units, a decline of 39%. The company has yet to release its October sales numbers.

The Indian commercial vehicle industry is reeling under a slowdown in demand triggered primarily by the paucity of and high cost of vehicle financing. Some 95% of commercial vehicles sold in the country are bought or leased with the backing of vehicle finance.

“There is an intrinsic demand in the market, it’s just that there is a lack of finance," said Siddhartha Lal, managing director, Eicher Motors.

With banks slowing on new sanctions and disbursals of commercial vehicle loans, non-banking finance companies such as Shriram Transport Finance Co. have stepped up their loan portfolio but seem to be unable to fill the void created by reticent banks, experts said.

Still, with liquidity easing in credit markets, Mahantesh Sabarad, an analyst with Centrum Broking, said he expected a reversal of the slowdown. “It’s more of a temporary phenomenon; once the liquidity situation improves, I don’t see any reason for sales to continue on a depressed note," he said. “Operators have merely postponed and not stopped purchases."

Despite the slowdown facing the industry, plans of multinational truck makers that got into alliances with Indian partners in the last two years remain unaffected, company executives said.

Rakesh Kalra, managing director of Mahindra Navistar Automotives Ltd, Mahindra and Mahindra Ltd’s commercial vehicle venture, said plans for starting production were on schedule for 2009. “We don’t have any plans to re-look the capital expenditure or volume plans," he said.

Shares of Ashok Leyland fell 9.33% to Rs17.50 each, shrinking faster than the broader market. Eicher Motors closed at Rs220.40, down 2.48%, and Tata Motors shares sank 12.17% to Rs159.15 each on the Bombay Stock Exchange, whose benchmark Sensex closed down 3.86%.