Unsold vehicles pile up at dealers as fuel, loan costs keep buyers away

New Delhi/Mumbai: Automobile dealerships in India are saddled with large unsold stocks as sharply higher fuel prices, erratic rainfall and rising borrowing costs have crimped demand in the past two months.

The increase in inventory is also caused by additional capacities and resultant higher factory dispatches by auto makers in their battle for market share. The scenario will likely deteriorate this month when retail sales are expected to fall substantially, especially in north India, due to the Shraadh period, considered inauspicious for big-ticket purchases such as property or vehicles.

A survey of 11 dealers of the country’s five largest passenger vehicle makers showed average inventory at dealers of Maruti Suzuki India Ltd and Mahindra and Mahindra Ltd (M&M) of about 45 days, much higher than normal levels of 25-30 days. For Tata Motors Ltd and Hyundai Motor India Ltd, dealers have inventories of around 35-40 days. The executives spoke to Mint on condition of anonymity.

The situation has been exacerbated by rising dispatches from Maruti Suzuki, as the country’s largest carmaker added a new assembly line of 250,000 vehicles at its Gujarat factory. Maruti’s move prompted others, especially Tata Motors, M&M and Hyundai Motor India Ltd, to follow suit in the last two months, despite subdued retail demand, the dealers said.

Two dealers of M&M in Haryana and Rajasthan said the inventory build-up to this year’s festival season began about four months before, against the industry norm of two months.

“Unfortunately, in India, vehicle sales are known only by wholesale numbers and dealers have little say over the number of vehicles they will have to take every month,” said the Haryana dealer. “Most of the manufacturers are fixated on market share, since it has an impact on their market cap. Hence, we have now inventory of almost 45 days and it will worsen in September.”

The Rajasthan dealer expects retail sales to increase 10-12% this year during the festive season, lower than M&M’s expectation of a 15-20% growth.

Veejay Ram Nakra, chief of sales and marketing at M&M’s auto division, said that although retail sentiment was subdued for the past few months and dealer stock levels were “a tad higher than usual”, pent-up demand was expected to return in the festival season.

“As we move into the festive season, we are confident of seeing a turnaround in the overall buying sentiment in the PV (passenger vehicle) space” on the back of three new products, including the recently launched Marazzo multi-purpose vehicle, Nakra said in an emailed response to queries.

He said factors such as fuel prices, interest rates and raw material prices “will have to remain stable” in the months ahead for demand to revive.

Higher inventories will add to the woes of dealers, who are already feeling the pinch of tepid demand. The festival season, which will peak with Diwali in early November, is therefore crucial for dealers, as well as auto makers, to exhaust their stocks. With expectations of a continued moderation in demand during the festive season this year, dealers and companies will be hard-pressed to juggle their inventories and production.

Passenger vehicle sales fell 2.7% and 2.46% in July and August, respectively, mainly due to a high base and lower demand amid floods in Kerala, according to data issued by the Society of Indian Automobile Manufacturers.

A senior executive at a Hyundai dealer in Rajkot, Gujarat, said his inventory is at a two-year high of 35-40 days. The executive said the dealer prepares for higher inventory before festive season, but not at the elevated levels being seen currently. “The company (Hyundai) expects 15% growth in retail sales in 2018, but it grew only about 10% so far due to some macro factors and bad rains in Gujarat,” he said.

For Maruti, the waiting period on models such as Swift and Dzire are a thing of the past and dealers in the national capital region are offering cash discounts worth ₹ 20,000, plus corporate discounts, to clear stocks despite the models being in high demand.

“The stocks of some of Maruti’s most efficient dealers are around 45-50 days now, against the usual 20-25 days. Though some dealers may not have an issue in clearing the stocks, other companies are also trying to push inventory since they have capacity and don’t want to lose market share,” said an Uttar Pradesh based dealer of Maruti.

A Maruti dealer in Mumbai said it has inventory of about 40 days, higher than the usual 25 days, adding that monthly sales have grown only 5-6% since July. “Surprisingly for the festive month (of Ganesh Chaturthi), bookings are not coming in,” he said.

A spokesperson for Maruti denied higher inventory and said sales and stock levels “are in line” with the aim to achieve “double-digit growth” in FY19.

“The auspicious festive season is an important opportunity for cars sales, every year. We want to deliver the cars quickly to our customers and accordingly keep our showrooms well stocked with our full product range,” the spokesperson added.

A spokesperson for Tata Motors declined to comment.

Puneet Anand, senior general manager and group head of marketing at Hyundai India, said the firm “maintains optimum inventory” at its dealerships and is expecting a strong festival season demand owing to the October launch of its “family car” code-named AH2.

Rajesh Goel, senior vice-president and director of sales and marketing at Honda, denied higher inventory at dealerships, and said the firm has maintained an all-India average dealer stock of 25 days in this fiscal, with expectations of a strong festival season due to next-generation models of Amaze sedan and CR-V SUV.