The average incentive in the second quarter of 2024 rose to INR 31,258 from INR 24,350 a year earlier, according to data collated by consultancy firm Jato Dynamics. Diesel cars topped the list with offers totalling INR 66,203 on average, followed by electric (INR 31,185), petrol (INR 29,209) and CNG (INR 19,353).
The industry had seen a surge in sales after the pandemic, driven by pent-up demand, increased preference for personal mobility and low interest rates, allowing manufacturers to raise prices by an average 6.5% during 2022-2023. The latest market trend suggests cooling demand, as well as intensifying competition which may require automakers to reset their strategies, say industry trackers.
As companies balance between preserving margins and maintaining market share, consumers may find themselves in a buyer's market, said Ravi Bhatia, president of Jato Dynamics.
As the auto sector navigates this new landscape, the coming months will be crucial in determining whether this is a temporary adjustment or a long-term market realignment, he added.
The market dynamics required even an automaker like the local unit of Toyota Motor, which is known to enjoy strong pricing power, to reintroduce incentives, with it offering up to INR 52,895. Car market leader Maruti Suzuki has taken a cautious approach, giving INR 22,453-26,246 in discounts and other incentives to buyers.
Inventory Pressure
Automakers start inventory stocking for the festive season from August every year. This year, this has started from June itself as they expect demand to pick up ahead of the main festive season, taking the current inventory levels to 55-60 days, dealers said.
“We have limited capacity in stocking vehicles. Banks have increased inventory funding to support the high stock levels," said Nikunj Sanghi, a leading automotive dealer in Alwar, Rajasthan.
Meanwhile, manufacturers are continuing with their production schedules, especially of SUVs that are high in demand. With high inventory and no cut in production, the discounts will likely continue through the festival period; it will not be a short-term phenomenon, dealers said.
"We are asking our dealers to create warehouse capacity and we are talking to banks to arrange for inventory funding, anticipating a demand pick up in the upcoming festival season," said a senior executive at a car company.
While current stock levels are not alarming as it comes on a high base, it indicates factory dispatches are outpacing retail sales, said an analyst at a brokerage house. If the push continues and demand doesn’t keep pace with it, the channels will be under pressure. With most car models available off the shelf and subdued customer orders in a scenario of high inventory levels, any slowdown in retail sales will soon start impacting wholesales too, said auto industry executives.
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