Auto inventory build-up to make discounts larger: Experts

Build-up of automobile inventory due to a slowdown in off-take might nudge companies into offering bigger discounts.

At present, automobile companies, spanning passenger vehicles to two-wheeler manufacturers, are doling out everything from 1st year free insurance to Rs 70,000 cash discount with zero interest rate on loans up to Rs 8 lakh for two years.

Heavy discounts are also being offered on new car models some of which have failed to get buyer traction. The industry is witnessing slowdown in sales since September 2018.

Industry insiders blame the sky-high discounts on the sliding sales, triggered due to high interest and fuel costs coupled with the general uncertainty over upcoming events like the elections.

Last month, the Society of Indian Automobile Manufacturers' (SIAM) data disclosed that passenger vehicles sales in the domestic market declined by 1.87 per cent to 280,125 units in January year-on-year.

Consequently, companies now stare at a massive build-up of inventories of unsold units with their dealerships.

Monthly estimates have painted a gloomy picture of the inventory levels, which are said to be more than 30-35 days for passenger vehicles and over 60 days for two-wheelers.

"Discounts during December 2018 were the highest in recent memory, somewhere as high as 60-70 per cent year-on-year. But they also failed to propel sales," said an official from the Federation of Automobile Dealers Association (FADA).

"These discounts continued till February, but we are seeing the inventory levels with dealers rise," the FADA official said.

But the silver-lining for consumers may be just around the corner.

Industry insiders told IANS companies might now be forced to offer even bigger discounts and freebies to clear inventory. These discounts will also be on new models and will be a continuation of the schemes, launched after the failed festive sales.

"Inventories have slowly build up because the consumer sentiment has been hit time and again on account of high fuel prices, 3-years upfront insurance payment (raising the cost by Rs 30,000) and liquidity constraints.

"Customer footfalls have also declined," a Delhi-based dealer with a leading automobile original equipment manufacturer (OEM) told IANS.

Grant Thornton India Partner Sridhar V. said, "To increase market share or maintain it, OEMs were pushing inventory, which led to a pile up at the dealers' end. OEM's will now resort to discounts to retire the inventory."

"The RBI decision to cut interest rate in February, if passed on by financing banks, may improve demand in the short term and lead to an opportunity to lesser discount offers," he said.

On two-wheelers, Subrata Ray, Senior Group Vice-President, ICRA, said, "Discounts are mostly at dealer levels, especially where inventory pile up remains significant."

"Subdued consumer sentiments as well as increased insurance costs, interest rates and fuel prices besides overall price increases (on account of commodity inflation, safety norm tightening) have caused demand postponement. Absorption of insurance cost, model specific financing schemes by some OEMs in some regions, dealers have offered discount," he said.

--IANS

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