Amidst 9% Fall in Sales and Increasing Inventory, FADA Urges Auto-makers To Take Corrective Action
Moneylife Digital Team 07 October 2024
Automobile retail sales in India declined 9.26% year-on-year (y-o-y) in September amid a massive buildup of passenger vehicle inventory due to sluggish demand. The Federation of Automobile Dealers Associations (FADA) has urged original equipment manufacturers (OEMs) to take corrective measures. 
 
In a release, FADA says, "High inventory levels in the passenger vehicle (PV) segment present a risk if October sales do not meet expectations, putting pressure on dealers as well as OEMs. If sales do not pick up during the festive period, then heavy discounts and offers might impact the profitability of dealers across the country."
 
Given the critical festive season around the corner, FADA urged OEMs to take immediate corrective measures to avoid a financial setback. It also requested the Reserve Bank of India (RBI) to issue an advisory to banks, mandating stricter channel funding policies based only on dealer consent and actual collateral to prevent dealers from facing additional financial pressure due to unsold stock. "This is the final opportunity for PV OEMs to recalibrate and support market recovery before it is too late."
 
"While the festive season presents an opportunity for recovery, the high stakes in October make it crucial for dealers and OEMs to clear existing inventory. Strategic inventory management and targeted festive promotions are key to capitalising on the expected surge in demand and stabilising market conditions," the auto-dealers' apex body says.
 
In September, the overall registrations fell 9.23% to 17.23mn (million) units from 18.99mn units in September last year, as most categories, including PVs and two-wheelers (2W), witnessed a y-o-y drop. Except for three-wheelers (3W) and tractors, which grew by 0.66% and 14.69% y-o-y, respectively, other categories such as 2W, PV and commercial vehicles (CV) fell by 8.51%, 18.81% and 10.45% y-o-y, respectively, FADA says.
 
 
According to CS Vigneshwar, president of FADA, dealers have reported that the performance has been largely stagnant despite the onset of festivals such as Ganesh Chaturthi and Onam.
 
During September, PV retail sales in India witnessed a steep fall of 18.81% y-o-y, signalling an alarming trend of declining consumer demand and deteriorating market sentiment, FADA says. "Seasonal factors such as shraddh and pitrapaksha, coupled with heavy rainfall and a sluggish economy, have exacerbated the situation, leaving dealers with historically high inventory levels of 80 days to 85 days—equivalent to 7.9 lakh vehicles worth Rs79,000 crore."
 
"The PV segment faces a critical situation due to high inventory levels at dealerships. If sales do not pick up as expected in October, dealers could face significant financial pressure from unsold stock piling up in their warehouses," it added.
 
The overall PV registrations during the past month stood at 275,681 units, compared to 309,053 units in September 2023. 
 
During September, 2W sales declined by 8.5% y-o-y to 12.04mn from 13.16mn in September last year due to low consumer sentiment, poor inquiries, and reduced walk-ins. Seasonal factors like the shraddh period, pitrapaksha, and heavy rains further impacted demand, resulting in delayed purchases and a subdued market environment, FADA says.
 
Three-wheeler (3W) sales showed marginal growth of 0.66% y-o-y to 106,524 units compared with 105,827 units in the same month a year ago, driven by positive customer engagement and increasing demand for e-rickshaw options. However, the auto dealers' apex body says overall demand remained subdued as many customers deferred purchases in anticipation of the upcoming festive season and heavy rains impacted walk-ins and sales activity.
 
CV sales declined by 10.45% y-o-y to 74,324 units from 82,993 units recorded in September 2023, reflecting mixed performance. "While there was positive sentiment and marginal growth in regions supported by infrastructure projects, overall demand remained weak due to low government spending, extended monsoon delays and seasonal challenges. Despite some improvement in fleet purchases, the market conditions remain subdued," FADA says.
 
According to Mr Vigneshwar, the president of FADA, the outcome remains uncertain while dealers and OEMs are betting on robust festive sales, especially in rural markets where positive cash flow and better agricultural conditions are expected to spur demand. He says, "A successful October is essential to clear out excess inventory and set a positive growth trajectory for the remainder of FY24-25." 
 
"With rising inquiries and optimistic dealer sentiments, the outlook leans towards optimism, but high stakes and dependency on October's performance warrant a cautious approach. If the anticipated sales do not materialise, it could shift the outlook to pessimistic, putting dealers and OEMs in a difficult position heading into the new year," he added.
 
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