Dealers body says inventory zooms to a historic high of 67 to 72=Rs 73,000 crores.
MUMBAI, Aug 5 (The CONNECT) – The Federation of Automobile Dealers Associations (FADA) has sounded alarm bells against the escalation of NPA crisis in the auto industry if stringent checks are not applied before inventory funding.
FADA pointed out that the recent surge in sale of automobiles kif accompanied by a significant concern over the jump in inventory levels to a historic high of 67 to 72 says which translates into a stock of Rs 73,000 crores.
“This poses a substantial risk for dealer sustainability, necessitating extreme caution,” said FADA vice president C S Vigneshwar who released the July sales data.
The association, therefore, urged the passenger vehicle makers to be vigilant about potential dealer failures due to these high inventory levels. “It is also crucial for the Reserve Bank of India to mandate financial institutions to implement stringent checks before releasing inventory funding, preferably requiring dealer consent or collaterals to prevent the escalation of NPAs,” he said.
India’s automobile retail sector saw a YoY growth of 13.84%, with almost all categories witnessing an increase. Two-wheelers (2W) grew by 17%, three-wheelers (3W) by 13%, passenger vehicles (PV) by 10% and commercial vehicles (CV) by 6%. Tractors, however, continued to underperform, falling by 12% YoY.
The 2W segment experienced notable growth due to a thriving rural economy, positive monsoon effects, and government support programs enhancing rural incomes. The introduction of new products and better stock availability also contributed significantly, despite market slowdowns in certain regions, excessive rains, and increased competition. The segment also saw an increase in EV sales due to discounts and EMPS scheme deadline.
PV sales saw a robust 14% growth, driven by new model launches and attractive pricing strategies. Dealers reported benefits from good product availability, attractive schemes, and a wider range of products. Nonetheless, heavy rains, low consumer sentiment, and intense competition posed challenges. Some dealers managed to sustain sales through strong promotions and incremental discounts.
CV retail sales showed a 6% YoY growth, with dealers reporting mixed sentiments. Positive factors included growth in the construction and mining sectors, while challenges such as continuous rainfall, negative rural market sentiment, poor finance availability, and high vehicle prices were also noted. Some dealers achieved growth through small bulk deals and leveraging increased market reach and product acceptability.”
Near-Term Outlook: The near term outlook across the auto retail segments shows a blend of optimism and caution. 2W sales are expected to be buoyed by factors such as a growing rural economy, positive monsoon impacts and the introduction of new products. The festive season beginning after the Aadi festival and favourable agricultural conditions are also likely to contribute to increased sales. However, heavy rainfall, ongoing agricultural activities and inconsistent monsoon patterns may dampen demand in certain areas.
PV could see mixed results. While the festive season, attractive schemes and good monsoon are expected to boost sales, concerns over low consumer sentiment, heavy rainfall and a lack of new product launches persist. High inventory levels pose a significant risk and it is crucial for PV OEMs to avoid further increases in stock to prevent financial strain on dealers. CV face a modest outlook, with positive factors including improved market reach and the festive season, tempered by challenges such as bad freight rates and ongoing rainfall.
The Indian Meteorological Department (IMD) predicts that rainfall in the second half of the monsoon season (August-September) is likely to be ‘above normal’ due to the potential formation of La Nina conditions. While August may see a brief break in the monsoon, overall rainfall for the two months is expected to remain high, which is crucial for Kharif sowing and standing crops. However, excessive rains could lead to city flooding, floods in low-lying areas and landslides in hilly regions, potentially impacting auto retail sales.
The auto retail market is cautiously optimistic for the near term, driven by positive monsoon effects, the festive season, and some product launches. Nonetheless, challenges such as heavy rainfall, high inventory levels in the PV segment, and economic uncertainties warrant caution. Effective inventory management and stringent financial checks are essential to sustain growth and mitigate financial risks, ensuring the stability and health of the auto retail sector.
