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Worry over auto stock

Inventory for both two and four-wheelers are expected to increase to more than 35 days by mid-October

Automobile dealers are worried that they may be saddled with huge stocks after the festival season, despite the recent rebound in sales.

Dealer stocks of two-wheelers and passenger vehicles are expected to rise to at least 35-40 days by the festival of Navratri which falls in mid-October this year as automakers boost supplies in anticipation of a pick-up in sales.

Such build-up of inventory is usual before the festival season, but given the unique circumstances this year, dealers are cautious of an adverse hit to their financials if sales do not happen as expected. They are also aware that in the past two years, vehicle sales during Diwali and Navratri stayed subdued due to a slowing economy.

The festival season is crucial as it comprises around a fourth of annual vehicle sales for automakers. Sales also tend to rise in December when companies offer heavy discounts to clear year-end stocks. Overall, vehicle manufacturers have been witnessing continuous decline in sales from the second half of FY19 due to sluggish economic growth and a rise in vehicle prices due to implementation of new safety and emission norms. Vehicle sales fell up to 20% last fiscal after reporting growth in low single digits in FY19.

The uncertain automobile market has forced more than 300 automobile dealers to close operations in the last two years and more are in the process of winding up as the pandemic has added to their woes.

Vinkesh Gulati, president, Federation of Automobile Dealers Associations (Fada), expects sales in the December quarter at nearly the same levels of last year.

“Sales in Rajasthan improved in Janmastami, while Maharashtra also improved during Ganesh Chaturthi. So, the positivity is apparent in increased enquiries and orders. Still, a year-on-year growth, if we compare two festive periods, will be difficult but it will be close or better than sales in the last four months."

According to dealers, inventory for both two and four-wheelers are expected to increase to more than 35 days by mid-October from around 25 days at August-end since retail sales in September is likely to be impacted by shradh period, considered inauspicious in north and west India.

Companies like Maruti Suzuki, Hero MotoCorp, Hyundai Motor India, Tata Motors, Bajaj Auto, Mahindra and Mahindra plan to increase production substantially in September and October. Most of them have raised output in July and August though retail sales are still to recover fully.

Retail sales of passenger vehicles fell 7.1% y-o-y to 178,513 units in August, according to Fada. Motorcycle and scooter sales dropped by 29% y-o-y to 898,775 units.

A Maruti dealer in South India, who declined to be named, said dealers are cautious about their inventory though optimistic on a recovery as retail sales have recovered to an extent and sales during the Onam festival were better than last year.

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