Car dealers in India are staring at a potential inventory glut valued at ₹44,000 crore by the end of this month, as the demand for automobiles cools off following three years of vigorous sales growth. According to a report by the Economic Times, the automotive sector is expected to end May with a record inventory of 400,000 vehicles, as shipments to dealers have outpaced retail sales.
Slowing Demand and Rising Inventory
The slowdown in demand, reflected by a projected 5% decline in passenger vehicle registrations in May compared to the same period last year, has been attributed to several factors. Key among them are uncertainties related to upcoming elections, the end of the marriage season, and extreme heat waves impacting significant markets like the Delhi-NCR region.
Despite the cooling demand, car manufacturers are expected to record a 4-4.5% year-over-year increase in factory shipments to dealers, totaling 340,000-350,000 vehicles for May. This rise in shipments, coupled with high inventory levels, has raised concerns within the industry.
Industry Insights and Responses
Hardeep Singh Brar, national sales head at Kia India, highlighted the stark difference in pre- and post-pandemic inventory norms. "Pre-Covid-19 stocks for the industry used to be in the range of 45 days. This has dropped to 2-3 weeks after the pandemic. Industry stocks are high," Brar said. He remains optimistic about future sales, citing positive forecasts for the monsoon season and expected reductions in interest rates later in the year.
An industry executive noted that the domestic automotive sector is poised to conclude May with an unprecedented network inventory of around 400,000 vehicles, a figure surpassing even the pre-festive season stockpiles. Despite this, Brar asserted that Kia India does not plan to adjust its production or dispatches, nor does it intend to offer discounts, maintaining that their products are competitively priced.
Expected Market Trends
Vinkesh Gulati, chairman of research at the Federation of Automobile Dealers Associations (FADA), anticipated continued sluggishness in June. He suggested that the festive season starting in October might catalyze a resurgence in demand. Gulati also predicted that due to the high inventory levels, consumer incentives and discounts could increase by 15-20% in June compared to May.
Earlier this month, several car manufacturers warned of slowing sales and rising inventory levels during investor calls, reflecting the broader market sentiment.
Recent Sales Data
Despite the current challenges, automobile retail sales showed a robust growth of 27% in April, reaching 2.2 million units, up from 1.74 million units in April 2023. The growth was seen across various segments, including two-wheelers (2W), three-wheelers (3W), passenger vehicles (PV), tractors, and commercial vehicles (CV), with sales increases of 33%, 9%, 16%, 1%, and 2%, respectively.
In contrast, the auto sales growth in March was modest, with a 3.14% increase, totalling 2,127,177 units compared to 2,062,409 units in the previous year. However, three-wheelers and two-wheelers still managed to post notable growth rates of 17.13% and 5.44%, respectively.
February saw the highest-ever domestic sales for passenger vehicles in that month, with 370,786 units sold, a 10.8% increase over February of the previous year. Two-wheelers and three-wheelers also recorded higher sales in February 2024 compared to the previous year.
Conclusion
The Indian automotive sector faces a critical juncture as it balances production with the cooling demand. With an anticipated inventory surge and fluctuating sales, the industry's focus will likely shift towards managing stock levels and stimulating demand through strategic incentives and marketing efforts. The upcoming festive season might provide the necessary boost, but until then, manufacturers and dealers will need to navigate the current challenges carefully to maintain market stability and profitability.
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