Showroom stockpiles signal slump in car sales

Showroom stockpiles signal slump in car sales

New Delhi: As far as India’s car makers are concerned, what you see is not what you get. While they maintain that all is well, data of actual purchases by consumers reveal that there are substantially fewer passenger cars on the road than those supposed to have been sold.

The trend, first reported in a Bloomberg-UTV investigation broadcast on 19 May, shows that there is a vast difference between month-on-month passenger car sales numbers issued by the Society of Indian Automobile Manufacturers (Siam) and the total number of vehicles registered at various regional transport offices (RTOs).

Citing data on Maharashtra, the single biggest market that accounts for 13% of car sales in the country, the channel showed that RTO numbers in fiscal 2010-11 for Maharashtra indicate that 293,673 cars were registered, while Siam data pegs sales at 327,655, implying that dealers were left holding 33,982 cars. Siam gives wholesale data of cars released by the companies to the dealers.

A survey of 12 dealerships across the country conducted by Mint confirmed the trend and found that the situation has worsened in the first four months ended April with sales seeing a dramatic fall due to the twin impact of rising fuel prices and costlier bank loans, resulting in a pile-up of inventory. All the dealers spoke on condition of anonymity as they are not authorized to talk to the media.

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According to a Bihar-based Mahindra and Mahindra Ltd dealer, sales have almost halved this year. “The stock is piled up. The company has increased the sales target this year. The start has been really bad," said the dealer. “Most of the time the company gives a fixed target but sometimes they also send more than the required number of vehicles."

The dealer said demand for vehicles such as the Scorpio and the Bolero is usually very high, so there may not be additional supply for those models.

“But a vehicle like the Logan, which has no demand in a place like Bihar, is being sent in plenty. It gets difficult for us to clear the inventory," said the dealer. “The company has also increased the sales target for this year, which at this point of time seems to be huge. Last year, we sold around 2,000 cars in Bihar. This year the company has raised the target to 3,500."

The growth surge in the previous year and the performance of small cars are responsible for the impact on sales, but this trend hasn’t had much effect on its bigger vehicles, said Arun Malhotra, senior vice-president (sales), Mahindra and Mahindra.

“Last year’s growth was not sustainable. What I have learnt from the industry is that there has been a slowdown in the small car segment. But we have not been affected by this so far," he said. “We have four models in the passenger vehicle segment and three of them—Scorpio, Bolero and Verito—have long wait lists. So far, we haven’t been affected."

An Andhra Pradesh-based Maruti Suzuki India Ltd dealer admitted that inventory levels were rising.

“Our sales target for this year has been increased by 15-20%. But the sales have really fallen in the past four-five months. We try and keep an inventory for 30 days, which is comparatively higher than other dealers as we consider the transit time. But this has gone up significantly to 40-45 days." This dealer sells at least 600 cars per month but is holding a stock of at least 1,000 cars.

Several dealerships of firms such as Hyundai Motor India Ltd, Tata Motors Ltd, General Motors India Pvt. Ltd also responded similarly. A New Delhi-based Hyundai dealership, which sold at least 450-500 cars per month last year, has seen sales falling 50% since the beginning of this year.

“In Delhi-NCR (National Capital Region), we generally ask for more stock for March and April due to Navratras, but this time the increase in interest rates and fuel prices hampered purchases a lot," said the Hyundai dealer. “Sales also took a hit because the Delhi government increased the road tax and there were rumours Haryana may also increase it to 7%."

Hyundai agrees demand has slowed this year but says there is no stockpile with dealers.

“There is a stress on demand due to the rise in fuel prices, interest rates and inflation. It wasn’t possible to sustain 30% growth. A correction was bound to happen. We expect to grow at 12-14% this year," said Arvind Saxena, director (sales and marketing), Hyundai India.

This kind of slowdown comes after the Indian car industry grew at an average 30% last year. On the other hand, January-April car sales have grown an average 17% to 730,364 cars, according to Siam. During the same period, sales of Hyundai and Tata Motors seem to have taken a hit. Hyundai’s sales rose 5.01% to 126,361 cars and that of Tata Motors by 8.03% to 104,089 from the year earlier.

“There is a combination of factors responsible for this kind of growth. If you see in March, everybody posted good numbers as people feared price hikes by car makers. But around the same time, there were increases in the fuel prices and interest rates as well," said Shashank Srivastava, chief general manager (marketing and sales), Maruti Suzuki India.

The Reserve Bank of India has raised the repo rate by 125 basis points since November 2010. Since December, petrol prices have risen by at least 10 per litre to 67 in Delhi.

“Another very important point is the launch of new vehicles in the mass segment. Last year, all car makers, including us, launched cars in the volume segment. That led to an increase in consumer excitement but this year we haven’t seen such activity at all," Srivastava said.

According to him, the industry sold at least 500,000 more cars in 2010 than 2009. “Out of these 500,000 cars, the new models accounted for 390,000 units. At Maruti we sold 260,000 more cars than 2009 and the contribution of cars such as Alto K10, new WagonR and Eeco was 190,000."

Banks have also seen a drop in the demand for auto loans as interest rates have risen.

“There is a definite slowdown in demand for auto loans. Rising interest rates, difficulty in credit availability and slower growth in the economy all point to a slowdown," said S.V. Parthasarathy, head, consumer finance, IndusInd Bank Ltd. “The premium car segment is the only exception as it is neither interest rate-elastic nor demand-elastic."

The auto loan business is expected to be stagnant in the current fiscal, he said.

“The auto industry has seen a long period of growth and a correction was bound to happen. The car market has been slowing down from October-November," he said.

Growth in the auto loan segment could slow in the short term, a senior State Bank of India official said on condition of anonymity. “Customers may decide to postpone their purchase decisions to a later date. Indian borrowers are still quite conservative and concerned over their repayment obligations and rising monthly EMIs (equated monthly instalments)," the official added. The bank offers car loans at the rate of 11.5% as against 10.75% earlier.