Passenger vehicle dealers struggle with inventory worth Rs 73,000 cr: Fada

Given the stockpile, carmakers should realign their production around retail figures, according to the Federation of Automobile Dealers Associations

Passenger vehicle (PV) sales have slumped, resulting in an unprecedented inventory of over 700,000 units worth Rs 73,000 crore at dealerships nationwide, according to Federation of Automobile Dealers Associations (Fada). The stockpile has increased from 65-67 days in early July to 70-75 days, prompting concerns about dealer sustainability.

The auto dealers’ body, according to a MoneyControl report, has said that the vehicle stockpile has shot up from 65-67 days in early July to 70-75 days now.

“This poses a substantial risk to dealer sustainability, necessitating extreme caution. I urge PV OEMs (Original Equipment Manufacturers) to be vigilant about potential dealer failures due to these high inventory levels,” said Fada President Manish Raj Singhania.

He further said, “Carmakers should realign their production around the retail figures. To achieve that, they should reduce their vehicle supplies to dealers. While the reduction cannot happen in a single month, the gap between (PV) retail and wholesale figures should be around 50,000 to 70,000 units.”

“The average number of days of vehicle inventory for auto dealerships should be 30 days, with some excess of about a week,” Singhania said. “While carmakers can reduce their dispatches in the coming months, they can increase them during September-end or early October this year.”

PV sales rose by 10 per cent in July: Fada
 

Notably, India’s passenger vehicle sales rose by 10 per cent in July, reaching 320,129 units, according to Fada data. However, PV wholesales for July saw a year-on-year decline of 2.5 per cent, standing at 3.41 lakh units, largely due to the high base effect from the previous year.

“If carmakers are genuinely concerned, they need to ensure the wellbeing of dealers. They should introduce suitable schemes that enable us to bring these vehicles to the market. Additionally, they must support us with the extra interest incurred from holding excess stock for extended periods. If they absorb this additional interest cost, it won’t erode our margins,” Singhania added.

‘Fluctuations keep happening’

Speaking on the issue of inventory stockpile, the Society of Indian Automobile Manufacturers (SIAM) has said that the industry body does not see it as a concern. “Such fluctuations keep happening,” said Vinod Aggarwal, SIAM president.

It is the individual companies’ decision on how they handle their working capital. “At the end of the day, it is in the interest of all the OEMs to make sure that their dealers are (financially) healthy and do good business. At the association level, we believe that all OEMs will take responsible actions if dealers are struggling with excessive inventory,” said Aggarwal.

Meanwhile, speaking to MoneyControl, Puneet Gupta, director of S&P Global Mobility said, “Automobile OEMs, in their anticipation of higher sales, have ramped up production, leading to a surge in dealer inventories. However, it’s time to retune the expectations, as the pent-up demand has waned, and ongoing uncertainties are dampening consumer interest. Additionally, rising interest rates are increasingly burdening potential buyers, further straining demand.”