Inventories pile up as auto firms hit a bump

However, the situation may benefit vehicle buyers as auto companies resort to cash discounts on purchases or attractive sales promotion schemes such as freebies and extended warranty offers to clear the stock pile of vehicles.

According to Mumbai-based auto analysts and dealers, cars are currently carrying an average inventory of about 25 days while two-wheelers are 20-25 days. Usually, cars carry an inventory of 12-15 days while two-wheelers have an inventory level of 10-15 days.

Although the term inventory is used for semi or partly finished goods, it also explains completely finished goods, which are ready for sale.

Possessing a high amount of (finished) inventory for long period of time is bad for the business because of obsolescence and spoilage costs, say experts.

"If the demand is higher, the flow (from manufacturing to retail sales) is much smoother. However, that only happens in popular models", said an auto expert.

Maruti has one of the lowest inventory levels in the industry, while Tata Motors is among the highest. Tata Motors, in its latest presentation, had said that its inventory levels were at 22 days.

"As the industry is heading for a slowdown, we are going to see a considerable rise in inventory levels. Due to lack of any product excitement, people are not willing to pay for models, which look outdated. Retail dispatches have declined in the last few months," said another analyst with a Mumbai-based brokerage firm.

The two-wheeler industry, too, is facing a mild increase in inventory levels at 20-25 days this year as compared to last year when sales of motorcycles had fallen by almost 12 per cent. Inventory levels had reached 45-50 days last year.

Normally, inventory levels for two-wheelers are expected to be 10-15 days. H S Goindi, head, sales and marketing, TVS Motors, said, "We have a comfortable level of inventory currently, much better than what the industry saw last year."

Decreasing price-elasticity (since bike sales are price sensitive and sometimes driven by incentives) and lack of any significant launch by industry majors, such as Bajaj Auto and TVS Motors, may push inventory to higher levels, say industry officials.

A dealer, who does not wish to be identified, said, "Sales had fortunately picked up in the last two months, however, the current month is almost flat. If the sales do not rise again, we may face a high inventory."