As dealer stockpiles surge to Rs 79,000 crore, auto sales slump

The Federation of Automobile Dealers Associations (FADA) has raised concerns over the auto retail performance for September 2024, with rising inventory levels and lacklustre sales ahead of the critical festive season. Dealers across the country are reporting mounting stress as inventory piles up, especially in the Passenger Vehicle (PV) segment, where stock levels have reached historically high levels of 80-85 days, translating to 7.9 lakh vehicles worth ₹79,000 crore.

FADA President, Mr. C S Vigneshwar, highlighted the challenges facing the industry despite favorable conditions in rural areas. "The 2024 southwest monsoon recorded 8% above-normal rainfall—the highest in four years—which has boosted Kharif sowing by 1.5% YoY. This increase in agricultural productivity has positively impacted rural demand and economic sentiment," he said. However, this has not translated into significant retail sales, with overall performance during the festive periods of Ganesh Chaturthi and Onam remaining stagnant.

Dealers have reported a trend of flat or negative growth, despite aggressive discounts and offers across various segments aimed at stimulating demand. Seasonal factors such as the Shraddh period and heavy rains further dampened sales, leading to a year-on-year (YoY) decline of 9.26% in overall retail sales. The most notable drops were in the PV category, which plummeted by 18.81% YoY, and the two-wheeler (2W) segment, which fell by 8.51% YoY.

The heavy inventory in the PV segment is particularly concerning. FADA called on Original Equipment Manufacturers (OEMs) to take immediate corrective actions, warning that the upcoming festive season, including Navratri and Diwali, represents a final opportunity for the market to recover before significant financial strain sets in. "Dealers are sitting on huge inventories, and if sales do not pick up as expected in October, the financial pressure from unsold stock will be severe." 

If the anticipated festive sales fail to materialize, dealers could be left with unsold stock, intensifying their financial burden. FADA has urged the Reserve Bank of India (RBI) to issue stricter channel funding guidelines, ensuring that loans are based on dealer consent and actual collateral to prevent further financial stress.

The Commercial Vehicle (CV) segment saw a mixed performance, with a minor month-on-month (MoM) growth of 1.46% but a 10.45% YoY decline. While infrastructure projects supported growth in certain regions, overall demand remained weak, impacted by low government spending and the extended monsoon season.

There were some bright spots, with Three-Wheeler (3W) sales growing by 0.66% YoY, driven by positive customer engagement and increasing demand for e-rickshaws. Tractor sales also grew by 14.69% YoY, reflecting robust rural demand and healthy agricultural conditions. However, these gains were not enough to offset the overall subdued market environment.

Looking ahead, the near-term outlook remains cautiously optimistic as Navratri and Diwali coincide in October, traditionally a strong period for vehicle sales. Positive rural sentiment, healthy water levels in reservoirs, and improved crop yields are expected to drive a surge in demand for 2W, PV, and Tractors. New vehicle launches planned for the month are also expected to stimulate the market.