Passenger vehicle inventory at record high of ₹73,000 crore: FADA

Inventory levels of passenger vehicles have surged to a historic high of 67-72 days, equating to ₹73,000 crore worth of unsold stock, according to the Federation of Automobile Dealers Associations (FADA).

This poses a substantial risk for dealer sustainability, necessitating extreme caution, the auto dealers’ lobby warns.

FADA has urged PV manufacturers to be vigilant about potential dealer failures due to these high inventory levels. “It is also crucial for the Reserve Bank of India to mandate financial institutions to implement stringent checks before releasing inventory funding, preferably requiring dealer consent or collaterals to prevent the escalation of NPAs,” the industry body cautions.

Passenger vehicle retail sales grew 10% year-on-year to 3.20 lakh units in July, driven by new model launches and discounts. Dealers reported benefits from good product availability, attractive schemes, and a wider range of products. Nonetheless, heavy rains, low consumer sentiment, and intense competition posed challenges. Some dealers managed to sustain sales through strong promotions and incremental discounts.

Two-wheelers retails grew 17%, three-wheelers (3W) by 13% and commercial vehicles (CV) by 6%. Tractors, however, continued to underperform, falling by 12%.

The two-wheeler segment experienced growth due to a thriving rural economy, positive monsoon effects, and government support programmes enhancing rural incomes, says FADA. “The introduction of new products and better stock availability also contributed significantly, despite market slowdowns in certain regions, excessive rains, and increased competition. The segment also saw an increase in EV sales due to discounts and EMPS scheme deadline,” it says.

In its near term outlook, FADA says two-wheeler sales are expected to be buoyed by factors such as a growing rural economy, positive monsoon and the introduction of new products. The festive season beginning and favourable agricultural conditions are also likely to contribute to increased sales. However, heavy rainfall, ongoing agricultural activities and inconsistent monsoon patterns may dampen demand in certain areas.

“PV could see mixed results. While the festive season, attractive schemes and good monsoon are expected to boost sales, concerns over low consumer sentiment, heavy rainfall and a lack of new product launches persist. High inventory levels pose a significant risk and it is crucial for PV OEMs to avoid further increases in stock to prevent financial strain on dealers,” the auto dealers’ lobby says.

Commercial vehicle retail sales increased 6% in July, with dealers reporting mixed sentiments. Positive factors included growth in the construction and mining sectors, while challenges such as continuous rainfall, negative rural market sentiment, poor finance availability, and high vehicle prices were also noted. Some dealers achieved growth through small bulk deals and leveraging increased market reach and product acceptability.

CVs face a modest outlook, with positive factors including improved market reach and the festive season, tempered by challenges such as bad freight rates and ongoing rainfall, says FADA.