Inventory woes continue to haunt auto industry; car sales plunge 14% in November

For Noida-resident Rahul Chadha, owning a 7-seater SUV was not only a matter of choice but a necessity too. With his parents and in-laws often accompanying the 35-year-old sales professional during vacations, the six year old premium hatchback had little room for the six-member family. Surging household expenses, however, forced him to deter his plan for nearly two-years. 

But not anymore. At the end of November, Chadha’s dream finally came to fruition as he drove in a new XL6 - a multi-utility vehicle from Maruti Suzuki - into his Noida home. While cost of living continues to rise sharply, what encouraged Chadha to take the plunge is the lucrative discount and offers that was lined up by the car dealer. “As we approached the dealer at the end of the month, we got an overall discount of close to Rs 65,000, including free accessories,” he explains ecstatically.

Maruti Suzuki (MSIL) - the country’s largest passenger carmaker is traditionally known for being frugal, when it comes to offerings discounts as demand for its cars remain higher compared to competitors’. But for the dealer - one of the leading players in the Northern parts of the country - Chadha’s offer of full down payment acted as an additional reason for offering such a lucrative deal. According to the promoter of the dealer network, who didn’t wish to be named, clearing his inventory against full payment is a better proposition. As stocks pile up at dealerships, the cost of maintaining his inventory, coupled with lack of available bank credit, is choking his cash flow like never before. “At times, we are selling off 2-3 months old inventory at a thin margin, especially during the month-end, not just to meet our targets but also to make room for newer inventory to come in,” he tells Business Today.

The challenge is not unique to the MSIL dealer. With inventory of passenger cars pilling up to nearly 70-days or close to two and half months, many automobile dealers in the country are at struggling to clear their stocks. Data shows, after a brief period of relief during the festive month of October, when passenger vehicle (PV) sales surged 32% year-on-year, retail off take of PVs fell 13.72% in November.

According to C S Vigneshwar, President of the country’s apex auto dealers association - Federation of Automobile Dealers Association (FADA), retail sales in November dashed hopes of a revival in demand. “While November was initially expected to build on its prior momentum, particularly due to the marriage season, dealer feedback suggests that this segment underperformed overall expectations. Although rural markets offered some support, primarily in the two-wheeler category, marriage-related sales remained subdued. The late occurrence of Deepawali at the end of October also caused a spill over of festive registrations into November, affecting the month’s sales trajectory,” he says. 

Data from FADA shows, PVs “faced notable headwinds”, with sales declining 33.37% month-on-month and 13.72% year-on-year. According to dealers, weak market sentiment, limited product variety and insufficient new launches, compounded by the shift of festive demand into October, hurt their sales in the past month. “Although rural interest was present, it failed to significantly improve sentiment. Inventory levels have reduced by about 10 days, but to remain high at around 65-68 days,” says Vigneshwar. FADA has urged the automakers to further rationalize inventory so that the industry can enter the new year on a healthier footing, reducing the need for additional discounts.

As per FADA’s estimates, despite deep discounts and promotional offers by dealers and carmakers over the past few quarters, the dealer network in the country continue to hold nearly 750,000 cars in their showrooms and warehouses - amounting some Rs 75,000-80,000 crore.

As PV sales continue to suffer, automakers have started to feel the pinch too. Data released by leading players like MSIL and Hyundai Motor India (HMIL) depict a rather gloomy picture. In November, MSIL reported a 4.3% decline in its PV sales - from 74,916 units last November to 71,720 units this year, as its popular hatchback models like Alto, Swift, Baleno and WagonR had fewer takers. The only segment that lifted its overall numbers is the SUV, growing 20.4% year-on-year to 59,003 units, up from 49,016 units in November 2023.

According to RC Bhargava, Chairman, MSIL, the company is actively working to bring down its inventory at the dealer level to 30 days by tweaking its production.

Second largest player HMIL’s numbers are in line with the trend too. The Gurgaon-headquartered subsidiary of the Korean auto giant reported a 2.4% decline in its domestic PV wholesale numbers for the month - to 48,246 units. While, Tata Motors, the country’s third largest PV maker, reported a meagre 2% rise in its domestic wholesale numbers during November - from 46,068 units last year to 47,063 units. 

According to Tarun Garg, Whole-time Director and Chief Operating Officer, HMIL, the company’s push towards SUVs and its superior performance in the rural market helped its sales during the month. “We also bolstered HMIL’s presence in the hinterland of India, by achieving highest ever monthly rural contribution of 22.1% in November,” he says.

Despite measures initiated by leading carmakers, inventories at dealer points continue to remain high, leaving them with few options other than offering lucrative discounts. As per sources, overall discounts offered by most dealers currently range between Rs 20,000 (for mini and compact cars) to Rs 75,000 (for larger models in the utility vehicle segment). Additionally, the automakers are planning to come up with special offers during the wedding and new year season - spread over December and January. 

Meanwhile, industry stakeholders like FADA are pinning their hopes on demand revival in the hinterlands from a prospective bumper yield in the Kharif crop season. It expects, apart from better income for rural households, a bumper yield will also bring down food inflation, boosting overall consumer sentiment. “In the PV segment, heavy discounting and improved product availability are expected to help offset weak consumer sentiment and a general year-end lull. While some customers are deferring purchases for new-year models, overall interest could pick up due to aggressive offers and end-of- year promotions”.