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The two-wheeler vehicle dealers have built up a very high inventory of 45-50 days (MINT_PRINT)
The two-wheeler vehicle dealers have built up a very high inventory of 45-50 days (MINT_PRINT)

The drop in sales of two-wheelers is worse in reality

The actual sales of motorcycles, scooters and mopeds, might actually be lower than revealed

Domestic two-wheeler sales for the first six months of the current fiscal dropped 38.3% from last year to 5.98 million units. However, the actual sales of motorcycles, scooters and mopeds, might actually be lower than revealed. Mint takes a look at the reasons for discrepancies.

A fair idea of domestic sales would be given by the number of vehicle registrations made at Regional Transport Offices across the country
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A fair idea of domestic sales would be given by the number of vehicle registrations made at Regional Transport Offices across the country

Why were actual sales less than 5.98 mn units?

The automobile industry reports domestic sales as factory gate shipments or dispatches. This is the number of two-wheeler units leaving the manufacturing facility to be delivered to dealers for sale to consumers across the country. These are not representative of actual sales to end consumers.

To get an estimate of the purchases by consumers, one needs to look at the number of registrations made at the Regional Transport Offices (RTOs) across the country. These figures stand at 3.74 million or around 37.5% lower than the sales reported by the industry, in the first six months of the current fiscal

Are there any data related discrepancies?

The Federation of Automobile Dealers Associations (FADA) publishes the data on registrations every month. This does not have data from RTOs of three states— Madhya Pradesh, Andhra Pradesh, and Telangana. While this would explain minor gaps between sales and registration numbers, the difference of more than two million units between sales data and registrations is too big to be made up for by sales in just three states. The answer, therefore, lies in the pile of inventory held by dealers. The two-wheeler vehicle dealers have built up a very high inventory of 45-50 days, according to FADA.

Chennai: Two-wheelers parked at a yard for their distribution among the beneficiaries of Amma Two Wheeler Scheme on the late J Jayalalithaa's 70th birth anniversary, in Chennai on Saturday
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Chennai: Two-wheelers parked at a yard for their distribution among the beneficiaries of Amma Two Wheeler Scheme on the late J Jayalalithaa's 70th birth anniversary, in Chennai on Saturday (PTI)

Why are dealers holding on to such huge inventory?

There are two primary reasons for the huge stockpiles. First is that the new Bharat Stage VI emission norms came into force on 1 April. This meant that the inventory of two-wheelers at the dealer level had to be built all over again. Besides, two-wheeler manufacturers and dealers are hopeful that sales will pick up during the festival season.

Will the dealers find it easy to offload stock?

A bulk of two-wheeler sales before the covid-19 pandemic struck happened through loans. Channel checks carried out by banking analysts and news reports suggest that banks and non-banking financial companies have been reluctant to give out two-wheeler loans. They have also moved towards financing a lower proportion of the price of the two-wheelers. This will make things more difficult for dealers who have accumulated a huge amount of inventory in the hope of selling it during the festival season.

What role will the festive season play?

As FADA said in its latest release: “Any dampener in vehicle sales during the upcoming festivals will have a catastrophic impact on dealers’ financial health." It advised “extreme caution to both original equipment manufacturers and the dealers to avoid building any further inventory as this may lead to a disastrous situation similar to last two festive seasons when sales were below the mark." However, the inventory has already been accumulated.

Vivek Kaul is the writer of Bad Money.

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