Passenger vehicle dealers saddled with inventory worth Rs 73,000 crore countrywide, claims FADA

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A slowdown in Passenger Vehicle (PV) sales has pushed inventory at auto dealerships across the country to an all-time high of over 700,000 units worth Rs 73,000 crore, according to the Federation of Automobile Dealers Associations (FADA).

The auto retail body has claimed that the vehicle stockpile has climbed from 65-67 days in early July to 70-75 days now.

According to FADA President Manish Raj Singhania, this poses a substantial risk to dealer sustainability, necessitating extreme caution. He has also urged PV OEMs (Original Equipment Manufacturers) to be vigilant about potential dealer failures due to these high inventory levels.

“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," Singhania said.

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

Notably, India's passenger vehicle sales increased by 1o percent in July, reaching 3,20,129 units, as per FADA data. During the same month, PV wholesales for July saw a de-growth of 2.5 percent on year, at 3.41 lakh units, due to the high base effect of the last year.

"If carmakers are genuinely interested, they need to keep the dealers healthy. So they should bring out adequate schemes so that we are able to bring these vehicles to the market. And they need to support us all for excess interest (for additional days of stock-keeping). If they are bearing the excess interest cost, that won't be a drain on our margins, Singhania added.

SIAM’s view

While the Society of Indian Automobile Manufacturers (SIAM) spokesperson did not comment, the president of the association recently affirmed that  “corrective actions” will be taken by its members to reduce inventory levels at their dealers.

“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,” Vinod Aggarwal, President, SIAM, told reporters on July 12 while giving an overview of the Q1 FY25 auto wholesales.

When queried on dealers seeking better inventory management from OEMs, Aggarwal had said that such fluctuations keep happening and the industry body does not see it as a concern.

"We should not worry too much about the stocks because I am sure all the respective companies where the stock level is high will take corrective action," Aggarwal had said.  He added, “It is not like that the stock levels will be high at all the companies as some, in anticipation of higher sales, might have sold more units to their respective dealers.”

What industry experts say

According to JATO Dynamics India, the Indian automotive retail and distribution system works on a model of dealers ‘stocking to sell’.

“OEMs sell into dealers and dealers sell out to consumers. In the past OEMs relied on dealers to inform them on the sellout of cars and this was called dealer retail report,” Ravi Bhatia, MD, told Moneycontrol. He said, “Incentives to dealers were linked to dealer reported retail. This sometimes leads to issues of over or under reporting. As markets mature such changes are required, Over the years, many international markets have moved to registration-based reporting.”

According to Puneet Gupta, Director, S&P Global Mobility, 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."

Arun Malhotra, another auto industry expert, concurred, saying that while the market remains buoyant, the growth rates are lower due to a “high base effect”.  However, he maintained, “As the festive season is approaching, inventory levels should come down by October-end if there are robust sales. But the production has to be rationalised in the long run to be sustainable.”