Fragile recovery: Retail auto sales contradict robust wholesale numbers

While automakers reported record growth in October sales, retail figures saw a fall

Soon after major automakers reported high sales numbers for October, dealers have cautioned against any exuberance. With declining retail sales contradicting the robust wholesale numbers, there’s an air of suspicion around the recovery narrative in the auto space.   

    

Auto sales are a barometer of the country’s economy and record high sales reported by manufacturers had raised hopes of the festive season pushing consumer demand severely hit by the lockdown.

The Federation of Automobile Dealers Associations (FADA), the national body representing automobile dealers in India, said the total vehicle registrations in October declined 23.99 per cent to 14,13,549 units from 18,59,709 units a year ago. Automakers in India report dispatches from factories to dealers as their sales in contrast to global markets where firms report actual retail sales.

The Indian system often results in robust dispatches by manufacturers, but may translate into an inventory pile-up with dealers in the absence of customer demand. Executives of auto firms, however, disputed the FADA numbers, saying it’s difficult to get an accurate picture of sales from dealers. FADA collects data from VAHAN, a portal of the road ministry.

“What is the definition of retail sales? Is it when the car is sold to the customer and the sale is registered or is it when the vehicle has got a new registration number, only after which it gets registered in the VAHAN portal. We have to be particular about the data we are using,” said Naveen Soni, senior vice-president, sales and service at Toyota Kirloskar Motors. “We have been saying month after month that the ground situation of actual sales from dealers to the end customer is not that buoyant as being conveyed by manufacturers. No doubt, there has been a slight uptick in sales due to the festive season but it is nowhere compared to last year,” Vinkesh Gulati, president of FADA, said.

While reporting their October numbers,  top two automakers Maruti Suzuki and Hero MotoCorp said their sales were higher by 18 and 34 per cent, respectively. While passenger vehicle sales number declined by 9 per cent at 2,49,860 vehicles, two-wheelers saw a sharp drop of 27 per cent in October with FADA reporting sales of 10,41,682 against 14,23,394 in the same period last year. Firms significantly ramped up their production after the supply chain issues got resolved post lockdown. 

However, there has been a difference of opinion among the two-wheeler makers about festive season sales. While the largest of them all--Hero Motocorp--said retail sales during Navratri was at 96 per cent of last year’s level, Bajaj Auto chairman Rajiv Bajaj said there had been little demand during the festive season. Sources indicated that the top two-wheeler makers were sitting on an inventory of as high as 60 days. Gulati fears that in the absence of a sustained recovery post festive season, it will be difficult to liquidate the stock. This could possibly lead to a financial loss for dealers. 

“Whatever pent-up demand was there will be over by the festive season. In the urban market, people are expected to spend a bit of their bonuses during Diwali, but beyond that, the economy has to imp­rove for vehicle sales to go up," said Nikunj Sanghi, director of JS Motor FourWheelers, an auto dealership based in Rajasthan.

When asked about the difference in data, Naveen Chauhan, head of sales at Hero, said the data on the VAHAN portal comes with a lag due to which it doesn’t capture the full picture.  He also said VAHAN doesn’t capture data of four states--Andhra Pradesh, Arunachal Pradesh, Madhya Pradesh, Lakshwadeep and Telangana--comprising 20 per cent of Hero’s customers.

However, an executive committee member of FADA said that while it is correct that retail numbers have a lag as manufacturers build stocks in peak season, it should match up after every two or three months.