Decline in PV, two-wheeler inventory may help smooth transition to BS VI

The cutting down of production days by the automobile manufacturers against the backdrop of the slowdown has started paying off with the inventory levels in the passenger car and two-wheeler segments coming down, thereby helping a smooth transition to BS VI vehicles. Though commercial vehicles are yet to see relief in terms of unsold inventory levels.

Inventory level for passenger cars used to be around 30-35 days in January 2019, which dropped to 25-30 days in October 2019. The drastic reduction was in two-wheeler segment, which dropped to 35-40 days from 50-60 days. In the CV segment, inventory levels continue to remain at the same level. 

Dealers are hoping that inventory in all the three categories - two wheelers, passenger vehicles and commercial vehicles - will soon come down as they believe this emission transition would result in gradual inventory ramp-up and would lead to lower wholesale dispatches in the third quarter of FY20, while few segments may witness pre-buying demand up-tick in the fourth quarter.  

"After inventory destocking, existing inventory fell to much lower-than-normal level for most players, which would lead to smoother transition to BS-VI. We believe this emission transition would result in gradual inventory ramp-up and would lead to lower wholesale dispatches in 3QFY20E, while few segments may witness pre-buying demand up-tick in 4QFY20, in our view. We expect higher production level in December 19 to grab the opportunity of higher sales led by year-end discounts," said Mitul Shah, Senior Research Analyst, Reliance Securities. 

Inventory correction of old BS-IV vehicles by all Original Equipment Manufacturers led to lower wholesale volume during the month. All segments reported year-over-year (YoY) decline (barring three-wheelers) in monthly volume during November. The commercial vehicle segment continued to report the highest decline of 15 per cent with Passenger Vehicle witnessing broadly flat volume with 0.8 per cent YoY decline. Scooter and motorcycles volume declined by 12 per cent YoY and 15 per cent YoY (due to higher destocking), respectively, said Shah.

Dealers have seen a slight positivity in November. Inventory in commercial vehicles has come down by around five days during the month compared to October this year.

With continued government focus on improving the overall economic situation and especially automobiles sales, which is considered the barometer of the country’s economic situation, along with the continued strong advocacy by the government for aggressive retail credit by the Banking, Financial Services and Insurance (BFSI),  Federation of Automobile Dealers Association (FADA) is hopeful of a third month of positive retail growth in December and further inventory reduction, to end the calendar year on a positive note, said Ashish Harsharaj Kale, president, FADA.

"Once again appreciating the efforts of all our OEMs in regulating wholesale supplies, FADA is quite confident that the inventory in all the three categories, that two-wheelers, passenger vehicle and commercial vehicles will soon be in the range of our recommended and requested optimum range of three weeks," he added.

The organisation, however, asked its members "to tread with caution", especially with regards to inventory and costs during these dynamic times of fluctuating consumer sentiment and the transition to the upcoming BS VI norms, which is scheduled to be on implementation from April, 2020. It is in an effort to ensure zero financial loss to its members in such challenging times, it added.