New Delhi: The passenger vehicle (PV) industry in India has been on an upswing this year — in stock availability, better supply chain, new model launches and in rising consumer demand for high-end vehicles.
During the 42-day festive period which accounts for close to 1/3rd of the total annual sales, the Federation of Automobile Dealers Association (FADA) said the industry “reached a new milestone” with total vehicle sales climbing to 37.93 lakh, a 19% increase from 31.95 lakh last year.
The dealers’ lobbying body added that despite the initial underperformance during Navratri, particularly in the PV sector, the situation improved by Deepawali, ending with a 10% growth rate in the segment. SUVs were in the highest demand.
The positive sentiment is crucial as the festive season during the past three years was largely impacted by COVID-19, semiconductor shortages, and irregular production schedules owing which upset supply and demand positions.
Last year during the Diwali festivities, the waiting period was as high as 2 years on several models, which has now largely come down to about six months, except for the top variants of certain models including Mahindra XUV700 and Toyota Hyryder.
With significant improvement in supplies, OEMs and dealers stocked up to make the best of the sales during the festive season this year. Experts suggest this is also the time when slow moving models can be sold with festive discounts.
Concern about dealership inventory
Now, since the second half of November there has been a usual post-festive slowdown in demand and bookings. However, the concern occurs as the average PV inventory at the dealerships ranges around 60-64 days.
“Historically, it is recognized that holding inventory beyond 30 days starts to erode dealer profitability as the financial burden is intensified by the high interest costs of inventory funding from financial institutions,” FADA said.
This underscores the need for OEMs to strategically reduce dispatches of slow-moving vehicles, especially in the entry-level category, it added.
To stimulate the sales, there are year-end offers and discounts on models in December. However, the market faces hurdles in terms of a preference for 2024 manufactured vehicles as well.
“The industry needs minimum retail sales of 3 lakh units for three months for the inventory to come down to normal levels. Banks also need to ensure to not overfund the dealers as per OEMs, but look at adequate funding as per the consent of the dealers,” Manish Raj Singhania, President, Federation of Automobile Dealers Association (FADA), told ETAuto.
During the past 5 years, PV stocks were at such high levels in 2019 owing to the upcoming transition from BS-IV to BS-VI from April 2020.
“There is about a 5%-10% discount on hatchbacks, sedans and entry level models. This should increase by December-end,” he added.
As SUVs are garnering a major share in the market, the entry-level car segment is still on the struggling end.
According to Singhania, demand from rural areas is better off this year than last year. This has also improved sales in the two-wheeler segment. However, entry level models which have a large market in the rural areas did not see a significant spurt in sales. “The price points for entry level models are still higher as against two-wheelers. Also their potential customers may consider buying a used car as a cheaper option.”
The two-wheeler category witnessed a significant boost in auto retail during November this year, clocking all-time high retails, buoyed by the festive excitement of Deepawali and enhanced by strong rural sentiments, thanks to thriving agricultural income. This year, the marriage season which is a significant booster of rural demand for two wheelers, started immediately after Diwali festivities in November. Last year, Diwali was in October and the marriage season lasted for a month from around Nov 15.
About the two-wheeler sector, he said that a spurt in rural sales was seen post the festive season last year as well. “Rural demand needs to be monitored for at least 4 months before it becomes stable. Even though the sector is recovering, rural demand may need one more year to fully come out of the woods. Challenges persist as severe weather conditions impacting rabi cultivation might affect rural incomes, potentially dampening sales.”
Going forward, Singhania feels that as the waiting period on PV models further improves, the production will further enhance and supply will increase. SUV models may then be driven by schemes and discounts next year.
FADA expects a single digit year-on-year growth in total vehicle sales for FY 2023-24.
