Unsold Inventory for Carmakers Soars to Rs 60,000 Crore

The Indian automobile industry is facing a severe slowdown in demand for cars and sports utility vehicles (SUVs), resulting in a staggering Rs 60,000 crore worth of unsold inventory with dealers. The passenger vehicle (PV) industry is sitting at an all-time high inventory level of 62-67 days, with market sentiment remaining subdued despite improved product availability and substantial discounts to stimulate demand.

The extreme heat has led to a 15% decline in showroom walk-ins, making it challenging for automakers and dealers to clear their inventory. In anticipation of a potential pick-up in demand after the general elections and a favorable monsoon season, passenger vehicle makers have been adding stock for several weeks. However, dealer partners have been asking them to curb supplies, as the monsoon season typically sees reduced consumer demand.

According to Manish Raj Singhania, president of the Federation of Automobile Dealers Association (FADA), the total unsold inventory in the market is expected to be around 600,000-650,000 units, with an average ticket size of Rs 9.5 lakh. The last two months have seen a significant increase in stock, with a whopping 77,000 units added to the inventory.

The data reveals that total wholesale dispatches in June were around 341,000 units, a growth of 4%, while actual retails (vehicle registrations) during the same month were 281,600 units. This highlights the significant gap between market demand and supplies from manufacturers.

Banks have become cautious and are only willing to lend to quality customers with good CIBIL scores, which is further hindering demand generation. As a result, discounts on cars have surged to multi-year highs, with even newly launched models, including SUVs, being sold at a bargain as both manufacturers and dealers try to liquidate their stocks.

Maruti Suzuki, one of the leading automakers, has also been affected by the slowdown. The company’s retail volumes dropped by 8% in June, higher than the industry average. Partho Banerjee, head of sales and marketing at Maruti Suzuki, attributed the increase in June volumes to new model launches from competitors, but acknowledged that inventory levels are higher than usual.

To combat the poor walk-ins in showrooms, Maruti Suzuki dealers were asked to keep their dealerships open late into the evening and conduct sales promotion events during this time. However, this initiative was only implemented in urban areas and came too late to make a significant impact.

FADA has emphasized the importance of effective inventory management strategies to mitigate financial strain from high interest costs. The organization has urged PV makers to exercise caution, as the festive season is still some time away. Dealer feedback highlights challenges such as low customer inquiries and postponed purchase decisions, making it crucial for automakers to adopt innovative strategies to clear their inventory.

Historical Context:

The Indian automobile industry has faced several challenges in recent years, including a slowdown in demand, increased competition, and regulatory changes. In 2019, the industry witnessed a significant decline in sales, with passenger vehicle sales dropping by 15.5% in the first half of the year. The industry has been struggling to recover since then, with sales growth remaining sluggish. The current unsold inventory crisis is a result of the cumulative effect of these challenges.

In 2020, the COVID-19 pandemic further exacerbated the situation, leading to a sharp decline in demand. The industry has been trying to recover since then, but the recent heatwave and economic uncertainty have added to the woes. The Indian government’s decision to withdraw the tax benefits on hybrid and electric vehicles has also impacted the industry’s growth.

Summary in Bullet Points:

• The Indian automobile industry is facing a severe slowdown in demand, resulting in a staggering Rs 60,000 crore worth of unsold inventory with dealers. • The passenger vehicle industry is sitting at an all-time high inventory level of 62-67 days, with market sentiment remaining subdued despite improved product availability and substantial discounts. • The extreme heat has led to a 15% decline in showroom walk-ins, making it challenging for automakers and dealers to clear their inventory. • The total unsold inventory in the market is expected to be around 600,000-650,000 units, with an average ticket size of Rs 9.5 lakh. • Banks have become cautious and are only willing to lend to quality customers with good CIBIL scores, which is further hindering demand generation. • Discounts on cars have surged to multi-year highs, with even newly launched models, including SUVs, being sold at a bargain. • Maruti Suzuki, one of the leading automakers, has also been affected by the slowdown, with retail volumes dropping by 8% in June. • FADA has emphasized the importance of effective inventory management strategies to mitigate financial strain from high interest costs and has urged PV makers to exercise caution, as the festive season is still some time away. • Dealer feedback highlights challenges such as low customer inquiries and postponed purchase decisions, making it crucial for automakers to adopt innovative strategies to clear their inventory.