“We are very cautious about the PV inventory because anything above 30 days starts draining the dealership. If inventory does not come down, we will write to the Society of Indian Automobile Manufacturers (SIAM),” Manish Raj Singhania, President, Federation of Automobile Dealers' Association (FADA) said at its third edition of the Finance and Insurance Summit 2024.
The industry is carrying an inventory of about 5.5 lakh passenger vehicles. Singhania noted that the dealers follow a repayment cycle where funds taken from the banks are paid back with interest within 60 days.
“Now, OEMs are increasing this period from 60 days to 90 days. With that, they would be able to dump more stocks at the dealerships, because they could say you have got three months’ time to rotate the inventory at the dealerships which was initially for two months. So that is a cause of worry to us as the interest can go up,” he said.
In May 2024, the auto retail sector marked a modest 2.61% YoY growth. The two-wheeler (2W), three-wheeler (3W) and commercial vehicle (CV) segments grew by 2.5%, 20% and 4% while passenger vehicle (PV) and tractor were in the red by 1% each YoY.
Last year, the industry carried an inventory of up to 65 days. Singhania said it was a big cause of worry for the auto dealerships at that time too. However, "the market supported well last year and we collaborated with SIAM and subsequently were able to bring it down”.
Meanwhile, he noted that the situation is different this year. FADA said it is on a wait and watch mode and if the inventory increases further this month, it will approach SIAM. “We are at a very high level already, crossing them will be very difficult. In fact, matching them would itself be an achievement for the auto industry.”
The industry saw highest inventory levels in 2018-19. Consequently, FADA found that about 275 dealerships had to wind up the operations, with the PV segment taking the major hit.
Singhania said the two-wheeler sales have been growing month-on-month since September last year. The inventory in the dealerships is 10-15 days. FADA expects a positive rural demand due to expected good monsoon and improved finance availability.
Singhania suggested to the finance and insurance companies to work on innovative financial solutions, offer enhanced support for training and upskilling dealership finance, and provide insurance coverage for test drive vehicles.
Rajan Pental, Executive Director, Yes Bank, said there has been an increase in stock levels in the last few months and the stocks are being maintained with high interest rates. “A 7%-8% growth is expected in the car market, but on the other side, things (at dealerships) need to be done in a judicious manner to control costs.”
Sharing his expectations for the upcoming budget, Singhania said, first, the work on infrastructure push should continue; second, a reduction of GST for entry level vehicles and third; continuity of FAME-3 policy.
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