Up against 60 days' inventory, car dealers seek Siam's intervention

The 60-day inventory levels are close to the 2018-19 levels when inventory inventory days had neared 70 days, and around 282 passenger vehicle dealerships had shut shop

The Federation of Automobile Dealers Associations (Fada) has raised concerns over the rising inventory levels of four-wheelers at dealerships, which have now reached a 60-day stockpile or around 550,000 units. This situation could mean a significant financial burden on dealerships due to the additional interest cost for the extended holding period.

These 60-day inventory levels are nearing the 2018-19 levels when inventory days had approached 70 days, leading to the closure of around 282 passenger vehicle dealerships. Fada has initiated discussions with the Society of Indian Automobile Manufacturers (Siam) to address inventory concerns. “We’ll be writing to Siam. We have communicated through the media that dealers are not happy and are getting stuck with inventory,” said Fada President Manish Raj Singhania. He stressed the need for improved financial management among dealerships to avoid financial difficulties.

“Anything above 30 days (of inventory) starts draining the dealership. We have a repayment cycle for every fund we take from the bank that we need to rotate in 60 days and pay back along with the interest,” Singhania explained to reporters, on the sidelines of a conference.

 

However, original equipment manufacturers (OEMs) are encouraging dealers to extend this period from 60 to 90 days, pushing dealerships to bear an additional month of interest costs, Singhania claimed. This change allows OEMs to offload more stock onto dealers, exacerbating the inventory problem.

Fada’s primary concern is that extending this period benefits OEMs at the expense of dealerships. “If we are not rotating the stock in 60 days, now they (OEMs) have created a facility where dealers will be able to rotate the funds in 90 days. OEMs are not bearing the interest cost of that extra tenure; the dealership is,” the Fada president further said.

Dealers take bank loans for inventory financing, typically for a period of 60 days. Singhania claimed that OEMs are insisting dealers extend the tenure of this financing scheme to 90 days, where the dealer is bearing the additional interest cost.

He noted that around a year ago, dealerships managed to reduce inventory levels from a peak of 62 to 65 days through collaboration with Siam and favourable market conditions. However, with the current inventory levels already high, repeating this feat appears daunting.

The summer months brought additional challenges, with an 18 per cent drop in dealership walk-ins due to extreme heat and election activities. Despite this, there is optimism for a recovery as temperatures drop and walk-ins are expected to increase.

Siam’s monthly data for May 2024 revealed that the production of passenger vehicles has increased by 7 per cent, reaching 369,648 units as opposed to 345,567 units a year ago, indicating that OEMs continue to create stock.

A Maruti Suzuki India dealership in Mumbai commented on the growing inventory levels, saying, “We have been seeing growing inventory levels from the past two-three months.” He added that models like the Ignis are difficult to sell.

Currently, the two-wheeler segment is performing well, maintaining a paid-up stock level of just 10 to 15 days. In contrast, passenger cars face higher inventory levels, highlighting the disparity in sector performance.

With production levels remaining stable, except for Toyota, which has struggled to ramp up production, the industry anticipates decent sales supported by a good monsoon season. Nonetheless, the timing of inventory build-up remains critical. “Inventory build-up is good, but only if it is before the season. Now, it’s off-season and not the right time to build inventory,” Singhania remarked.


60-day stockpile

> The current  inventory levels are close to the 2018-19 levels when inventory days had neared 70 days

> Dealers take bank loans for inventory financing, which is typically for a period of 60 days

> OEMs insisting dealers to extend the tenure to 90 days, says Fada President Manish Raj Singhania 

> According to Siam data, production of passenger vehicles  increased by 7%, reaching 369,648 units this May versus 345,567 units a year ago