Dealers urge carmakers to slow down factory dispatches as inventory piles up

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Grappling with prolonged stock holding periods and sluggish sales, auto dealers have asked car makers to delay vehicle dispatches to reduce inventory pile-up at their end. While average inventory levels have averaged 40-42 days for a long time, it has increased to 60 days over the past three months.

This surplus has heightened worries about increased interest costs and financial pressure on dealerships.

“During the last festive season, dealers received inventory stocks covering more than 60 days. Subsequently, we have been urging OEMs and have even written to SIAM to reduce the dispatch of stocks," Manish Raj Singhania, president of the Federation of Automobile Dealers Associations, told Moneycontrol.

While expressing concerns over the rising inventory levels of passenger vehicles at dealerships, Singhania said that FADA will also reach out to its industry counterpart, Society of Indian Automobile Manufacturers (SIAM), to advise its members to moderate the unrestricted inflow of vehicle stocks.

“Over the last three months, we have seen a steady rise in inventory, and in May, we closed with 55 to 60 days of inventory. That is equivalent to 550,000 to 600,000 vehicles for a two-month stock,” Singhania added. He foresees similar stock levels at the end of June.

Explaining the predicament, Singhania stated that auto dealers constantly secure loans to finance vehicle stocks bought from OEMs. These loans come with interest payments meant to be repaid within 60 days.

According to the data collated by FADA, PV retail sales during April and May totalled 638,481 units, up by 7.24 percent from 595,361 units registered in the corresponding period last year. Similarly, total PV wholesalers during April and May were 685,886 units, just a 1.26 percent increase from 666,714 units sold during the same period last year, according to SIAM data.

Based on this data, the total number of unsold stocks stood at 47,405 units as of June 1, 2024, compared to 71,353 units in the same period last year. While the gap narrowed between PV wholesale and retail figures, the inventory period nearly doubled to 60 days.

A spokesperson for SIAM did not comment on the queries sent by Moneycontrol.

The FADA president stated that wholesale figures for all segments, including SUVs, have stabilised recently. “With the waiting period for SUVs over, all vehicles, except for a few variants, are available off-the-shelf at dealerships,” Singhania noted.

He also said that OEMs need to strike a balance between production levels and demand to prevent overstocking of cars, particularly in the hatchback and sedan segments. “OEMs should bill vehicles according to the retail figures in the market. They should not overbill dealers by pushing stocks of low-demand vehicles.”

Inventory period extends

Singhania also revealed that OEMs have been pushing banks, which offer vehicle financing solutions, to extend the revolving credit facility provided to dealers to 90 days to facilitate holding higher levels of inventory. He also claimed that OEMs are urging dealers to extend the tenure of this financing scheme to 90 days, with dealers bearing the additional interest costs.

“While dealers are getting an additional month, this scheme enables OEMs to offload more stocks. This would further burden dealerships with interest costs and excess stock,” Singhania noted. "If they are extending the financing period, they should introduce a scheme to cover the extra interest costs.” In his view, a 30-day inventory level is manageable.

Responding to a query from Moneycontrol, India’s largest car maker Maruti Suzuki stated that it has a stock level of 35 to 36 days, which it considers "manageable".  The company said that its current inventory pipeline totalled 168,000 units as of early June, and the company does not intend to take any measures to further reduce that count.

“We have a network stock of 30-35 days, including transit time. This is neither too high, nor too low, as we are averaging monthly wholesale numbers of 147,000 units. The current levels are also pretty normal, and we do not feel under pressure,” Partho Banerjee, senior executive officer of marketing and sales at MSIL, said on June 1.

Hyundai Motor India Limited (HMIL) stated that it had an inventory of 44,774 units in early June. “With average monthly sales of 50,000 units, our inventory is less than four weeks. We take pride in maintaining optimal inventory in our network. We have always done so and plan to continue,” said Tarun Garg, chief operating officer of Hyundai Motor India (HMIL), earlier this month.