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Is auto demand booming? Companies say yes, but dealers paint a different picture

The inauspicious Shraadh period has hit retail offtake, say dealers. Adhik Maas, an extra month in the Hindu calendar, and expectations of a GST cut have also impacted volumes, they say

September 16, 2020 / 02:00 PM IST

If one goes by the commentary from auto companies, sales of vehicles in September will be higher than the numbers seen in August. That is an unusual occurrence for this time of year, which includes Shraadh, the 16-day lunar period considered inauspicious by many. People generally avoid making major purchases during this period.

At the same time, wholesalers caution against any optimism, and even warn of an inventory pile-up. Retail automotive demand, the dealers have cautioned, has slowed down in September and won’t bounce back with vigour before October, which could lead to piling up of inventory.

Why the dichotomy?

Shraadh, which gets over on September 17, is the primary reason for the dip in retail offtake. Compounding matters, Adhik Maas (an extra month in the Hindu calendar), and expectations of a reduction in GST, have also impacted volumes, say dealers.

Speaking to Moneycontrol, Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA), said: “Normally, Navaratri begins soon after the Shraadh period. But this year all festivities will begin a month after Shraadh gets over and this period is also not considered to be good for sales in the North, East and West of the country. We are expecting September to be below August and also below last September.”

Retails (actual purchases by customers from dealers) in August were 20-30 percent lower than wholesales, claimed Gulati. “FADA advises extreme caution to all OEMs and our dealer fraternity to avoid excessive inventory build-up, thus leading to unmanageable interest costs, which could result in dealership closures,” the association has said.

Wholesales optimistic

But when it comes to wholesale numbers, which are based on what companies supply to dealers, the picture is sanguine.

Despite comparatively lower retail growth, wholesales have picked pace. At 2.16 lakh units, car and SUV dispatches in August rose 14 percent YoY, the first double-digit growth since the start of the year. This is also on the back of the 3 percent drop in July YoY, according to data shared by the Society of Indian Automobile Manufacturers.

Also Read: Is it high taxes? What really ails Toyota in India?

Nonetheless, passenger-vehicle and two-wheeler manufacturers are stepping up supplies to dealerships to meet the festive demand spike. Manufacturers are expecting September to be better than August and last September.

“Since the last week of August we have seen demand picking up in the urban market as well. The perception of two-wheelers being a safer option to commute is getting translated into sales,” said a senior executive at one of India’s top five motorcycle makers.

“Sales (to dealers) are better this year during Shraadh than last year’s Shraadh. The growth, however, is in single digits. The GST-cut expectation playing on consumer’s minds also cannot be ruled out,” said an executive at one of top three two-wheeler makers.

Demand for cars and SUVs has increased at a much faster pace than all other segments. But manufacturers are unsure if this pace can be sustained given the uncertainty over retail demand as well as production-related challenges.

Retail vs wholesale

The dichotomy between retail and wholesale can be explained by an age-old practice in the industry. Manufacturers tend to literally dump stock on their dealers, especially if there are festive days on the horizon. The other reason behind higher-than-required inventory is that manufacturers are bending their backs over production because of their experience during the lockdown.

Also Read: Nitin Gadkari proposes setting up of a committee of retired experts to solve auto industry issues

Fed up with regional and local lockdowns that cripple the entire automotive supply chain, the manufacturers are producing as much as they can with whatever supplies they get from component makers.

“Wholesales are dependent on the supply chain, whereas we are dependent on retails. So, if Covid stays away from factories, wholesales in September will be similar to August, meaning there will again be an increase of 10-20 percent in cars. There was a gap of 30 percent in wholesales and retails in August and the gap will only increase in September,”  added Gulati.
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Swaraj Baggonkar
first published: Sep 16, 2020 02:00 pm