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The Federation of Automobile Dealers Association (FADA) on Thursday said that passenger vehicle inventory levels at the end of August have reached alarming levels, with stock days now stretching to 70-75 days and inventory totalling 780,000 vehicles, valued at a staggering Rs 77,800 crore.
The numbers in both volume and value terms are 7% higher than July, indicating that dealers’ request to car manufacturers to calibrate dispatches have gone unheeded.
“Rather than responding to the situation, passenger vehicle manufacturers continue to increase dispatches to dealers on a month-on-month basis, further exacerbating the issue,” FADA president Manish Raj Singhania said in a statement.
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He added that dealers must act swiftly to stop taking on additional stock to protect their financial health. “If this aggressive push of excess stock continues unchecked, the auto retail ecosystem could face severe disruption,” Singhania said.
However, PV manufacturers do not agree with the scenario being depicted by FADA. Manufacturers told Fe that the maximum possible inventory within the system could be 415,000-420,000 units, which is around 5-6 weeks (35-40 days).
“Going by bank inventory limit which is around Rs 45,000 crore, some cash-credit limits, some letter of credit and bank guarantees, etc, the maximum value of inventory would be around Rs 51,000 crore with the average vehicle price at around Rs 12-13 lakh,” an industry executive told Fe.
Maruti Suzuki, the country’s largest carmaker controlling 40% of the domestic passenger vehicle market, claimed at the start of September that it had brought down its inventory days to 36 from 38 seen in July.
“During August, we did some corrections in dispatches but further correction is not advisable. We don’t intend to do any further stock correction given that Navratri will be in October,” Partho Banerjee, senior executive officer (marketing and sales), Maruti Suzuki India said earlier this week.
Other manufacturers Fe spoke to also said that they are responsible players and are adhering to a month’s inventory, which is a thumb rule of the industry. Industry sources said that Hyundai Motor India, which is the second largest PV manufacturer, has inventory with dealers of less than a month.
“If FADA is claiming such high inventory levels, then it should specifically name the manufacturers whose inventory levels are high, ie, exceeding more than a month’s stock,” said an industry executive.
Sources said that FADA has written to the Society of India Automobile Manufacturers about the high inventory levels, to which the latter has responded that it’s a matter to be resolved between individual OEMs and dealers.
Pointing to the problems with high inventory levels, FADA said that the festival season would not be able to correct the stock lying with the dealers. “We cannot expect a total correction of the stock during the festive season because OEMs will build vehicles in lieu of festive demand and dealers will also want to avoid missing out on sale,” Singhania said.
Dealers claim that the steep discounts offered by manufacturers is proof of high inventory levels within the system. “Consumer offers are already at their best-ever. Why would the industry offer this much (discount) at normal inventory levels of 36 days as claimed by them,” said a Mumbai-based auto dealer.
“We will write to all banks and NBFCs to be prudent in funding the dealers. We need to assess the composition of the aging stock. They should not over leverage dealers. If a dealer goes bust, the financiers will be the biggest and immediate to lose and besides being a loss to the OEM as well, Singhania added.
Since the 42-day festive period typically generates 10-15% of the entire year’s volume, manufacturers are keen to avoid making the customer wait for delivery during the auspicious period and make the vehicle available ‘off-the-shelf’.