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Maruti Suzuki's October dispatches topped the 1.8-lakh mark while Hero MotoCorp wholesales were at a record 8 lakh. (Photo: Mint)
Maruti Suzuki's October dispatches topped the 1.8-lakh mark while Hero MotoCorp wholesales were at a record 8 lakh. (Photo: Mint)

Auto sector not out of the woods despite record wholesales in October

  • Rising vehicle sales have largely been the result of good monsoons, robust harvest, increased government subsidies, and a shift towards personal mobility

NEW DELHI:Factory dispatches of two-wheelers and passenger vehicles grew at a brisk pace in October, prompting some of the major auto sector players to ramp-up production to build inventory at dealerships as they expect retail sales during Diwali and Dhanteras to scale new heights.

Most manufacturers expect pent-up demand in rural and urban markets and an increasing preference for personal mobility to boost retail sales of vehicles in November.

Maruti Suzuki's October dispatches topped the 1.8-lakh mark while Hero MotoCorp wholesales were at a record 8 lakh. Sales of Hyundai Motors and Kia Motors were at their highest during the month while Bajaj Auto and TVS Motor Company also reported robust growth in dispatches.

But what happens after November is a cause of concern.

As such, if Diwlai sales fail to meet expectations then most manufacturers will have to offer steep discounts to liquidate inventory.

With the Indian economy expected to shrink by more than 10% this fiscal and unemployment rate, especially in urban centres, higher than normal, demand may take a hit going forward.

Hence, dealers whose financials are stretched following two consecutive years of tepid sales are worried about rising wholesales amid signs of slow economic revival. Also, work from home in IT and consultancy firms have hit sales in major cities.

“Dusshera sales have fallen short of the last year’s level since demand for motorcycles in rural peaked in August and early September. If Diwali sales also don’t meet expectations then dealers will be under huge pressure and discounts in December will have to be increased substantially," said a dealer for Hero MotoCorp in the national capital region.

Excess inventory post the festival season will make it tougher for dealers with stretched financials.

Ever since the union government decided to begin easing lockdown curbs in May, manufacturers like Hero MotoCorp, Maruti Suzuki, Hyundai Motor India and Tata Motors have witnessed a surge in sales of entry level motorcycles, cars and utility vehicles in rural and urban markets. The demand has largely been a result of good monsoons, robust harvest, increased government subsidies, and a shift towards personal mobility.

But most automakers believe the trend is unlikely to sustain and sales may pose a problem January onwards.

According to Rajiv Bajaj, managing director Bajaj Auto Ltd, sales of 100cc vehicles have failed to meet expectations and post festival demand prospects are not to bright.

“The impact of people wanting to buy vehicles for personal use and festivals will be over by December. The rural segment will continue to grow substantially. We don’t how the urban demand will be and how much income people in urban markets will be left with. I don’t see any strong urban demand after festive since people can’t afford the vehicles," as per RC Bhargava, chairman, Maruti Suzuki India.

Thus the recovery in retail sales and factory dispatches in October must be taken with a healthy dose of salt.

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