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Unsold Passenger Vehicle Inventory Rises To 7.9 Lakh Units; Valued At ₹79,000 Crore: FADA

Published on 7 Oct, 2024, 7:36 AM IST
Updated on 7 Oct, 2024, 7:44 AM IST
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Pratik Rakshit
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The unusually high inventory levels have been attributed to aggressive dispatches by automakers, while weak consumer sentiment, seasonal factors, and heavy rainfall have hindered retail sales.

The Federation of Automobile Dealers Associations (FADA) has sounded the alarm over unsold passenger vehicle (PV) inventory levels in India, which have reached a critical high of 7.9 lakh units. These vehicles are collectively valued at an estimated ₹79,000 crore, creating significant financial pressure on dealerships. The unusually high inventory levels have been attributed to aggressive dispatches by original equipment manufacturers (OEMs), while weak consumer sentiment, seasonal factors, and heavy rainfall have hindered retail sales.

FADA's recent report highlighted that the inventory days for passenger vehicles have soared to 80-85 days, a historical high. This surge in unsold stock poses considerable financial challenges for dealers, many of whom are struggling with cash flow due to the mounting costs associated with holding unsold vehicles. The organisation's president, C.S. Vigneshwar, voiced concerns about the current situation, describing it as a make-or-break moment for both dealers and OEMs ahead of the crucial festive season.

Dealers are under increasing financial pressure as they bear the cost of unsold stock, which risks becoming unsustainable if sales do not improve significantly in October. To manage these risks, FADA has urged the Reserve Bank of India (RBI) to implement stricter guidelines on channel funding policies. The aim is to ensure that banks provide funding to dealers only with their explicit consent, and based on actual collateral, to prevent dealers from being burdened with excessive financial strain due to unsold stock.

Several factors have converged to create the current inventory crisis. While OEMs have been dispatching vehicles aggressively, retail sales have not kept pace, leading to a growing pile-up of unsold stock. FADA attributes this disparity to a combination of seasonal and market-related factors:

1. Weak Consumer Sentiment: A decline in retail sales by 9.26 per cent year-on-year (YoY) was recorded for September 2024, with the passenger vehicle segment witnessing a particularly steep decline of 18.81 per cent `YoY. Economic uncertainty, inflationary pressures, and seasonal events such as Shraddh and Pitrapaksha have dampened consumer demand for new vehicles.

2. Weather-Related Disruptions: The southwest monsoon brought 8 per cent above-normal rainfall, disrupting retail operations and walk-ins in several regions. As a result, many potential buyers have delayed their vehicle purchases, further contributing to the inventory build-up.

3. Delayed Festive Demand: While Ganesh Chaturthi and Onam were expected to boost sales, their impact on demand has been underwhelming, leaving dealers with stagnant or negative growth during these festivals. Many consumers appear to have deferred their purchases in anticipation of the major festive season in October, when Navratri and Diwali occur in the same month.

To mitigate this risk, FADA is advocating for more responsible inventory management practices by OEMs, encouraging them to align vehicle dispatches more closely with actual retail demand. Dealers have also introduced significant discounts and offers to stimulate sales, but these promotions have yet to yield a substantial recovery in demand.

Looking ahead, the upcoming festive season represents a critical juncture for the auto retail industry. FADA remains cautiously optimistic, noting that both Navratri and Diwali falling in the same month could lead to a surge in vehicle sales. Improved agricultural conditions, driven by a good monsoon and higher crop yields, are expected to boost rural demand for two-wheelers (2W), passenger vehicles (PV), and tractors (Trac).

However, the stakes are high, particularly for the passenger vehicle segment. If sales during the festive period do not meet expectations, the financial burden of unsold stock will intensify, potentially leading to a difficult situation for both dealers and OEMs. Heavy discounts may help clear inventory but could also erode dealer profitability if sales volumes do not pick up significantly. 

AckoDriveTag IconTags
Passenger Vehicle
Passenger Vehicle Sales October 2024
FADA
Car Dealers India
Federation of Automobile Dealers Associations
Festive Season 2024

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