Retail Car Sales Plunge by 18.8% as Inventory Reaches Unprecedented 790,000 Vehicles

Are you planning to buy a new car this festive season? If so, you might be surprised to learn that car dealerships across India are grappling with an unprecedented inventory pile-up. 

The Federation of Automobile Dealers Associations (FADA) recently reported that retail car sales in India plummeted by 18.81% in September, creating significant financial pressure on dealerships.

The overall inventory has reached an all-time high, with over 790,000 unsold vehicles worth approximately INR 79,000 crore, representing a supply lasting 80 to 85 days. This situation poses serious challenges to the automotive retail sector, raising concerns about its resilience amid persistent economic pressures and fluctuating demand.

Why the Retail Cars Overstock?

The Indian automotive market, once a beacon of growth, is now facing a period of uncertainty. Several factors have contributed to the current situation:

• Aggressive Dispatches: Automakers, eager to meet production targets, have been aggressively dispatching vehicles to dealerships, even in the face of slowing demand.
• Weak Consumer Sentiment: Rising interest rates, inflation, and geopolitical tensions have dampened consumer sentiment, reducing demand for new cars.
• Shifting Market Dynamics: The market is witnessing a shift towards premium and SUV segments, while demand for entry-level and mid-segment cars has softened.
• Production Challenges: Supply chain disruptions and component shortages have impacted production schedules, leading to an inventory build-up.

The market is also experiencing the impact of frequent new model launches, especially in the compact SUV category, which has led to competition among models and further inventory accumulation. As a result, older models are now piling up in dealerships, unable to keep pace with consumer preferences for the latest offerings. Source: Economic Times

Which Car Brands Are Most Affected?

While the entire industry grapples with inventory issues, some brands are more affected than others. Maruti Suzuki, India’s largest carmaker, is facing a significant inventory buildup, especially for models like the Baleno and Grand Vitara. Hyundai and Mahindra also deal with higher-than-normal inventory levels, particularly for specific models.

1 Mahindra & Mahindra

Mahindra dealers currently hold an average of 50 days’ worth of inventory, with popular models like the Bolero, Scorpio-N, and XUV700 experiencing varying demand across different regions. For example, urban dealerships have seen higher stocks of rural-favorite Bolero models, while tier-II and tier-III cities are witnessing higher supplies of Scorpio-N and XUV700 due to their popularity in metro regions.

2. Kia India

Kia dealers have managed to avoid high discount pressures, holding an average inventory of around 1.5 months. Models like the Seltos continue to perform well, while the recently launched Carnival MPV has drawn attention with a six-month waiting period. The South Korean brand appears less impacted by inventory challenges than other major automakers.

3. Maruti Suzuki India

Maruti Suzuki, India’s largest carmaker, deals with average dealership inventories of 60 days. However, some models like the Baleno and the Grand Vitara carry higher stock levels of up to 90 days. The premium Nexa outlets, which usually offer higher dealer margins, are experiencing flat growth due to high inventory levels.

Conversely, Arena outlets selling high-demand models like the Swift and Brezza have seen better performance, with Brezza carrying a waiting period of 15 days. However, internal competition has also impacted Maruti’s sales; the Swift has cannibalized 20% of Baleno’s sales, while Brezza has similarly affected Grand Vitara sales.

4. Tata Motors

Tata Motors is currently offering substantial discounts on several models, with the Tata Safari carrying a cash discount of INR 25,000 and a price drop of INR 1.8 lakh. The Harrier offers a similar cash discount and a price reduction of INR 1.6 lakh. The Nexon iCNG and electric models have drawn strong demand for Tata dealerships. In October, Tata adjusted its targets to reduce inventory; the company reduced its wholesale targets while raising retail goals to help dealers clear stock from an initial 90-day inventory level at the start of the month to 45 days by month-end.

5. Hyundai Motor India

Hyundai dealerships operate with inventories of 45 to 60 days, though the flagship Creta SUV is an exception, remaining a fast-mover without any discounts or significant stock buildup. The newly launched Alcazar has shown promise in the market, but models like the Exter are seeing slower demand, with inventory levels around two months. According to Samir Choudhry of Trident Automobiles in Bengaluru, a dealer’s business judgment often influences inventory decisions, but rapid stock build-up can lead to financial stress. Source: Economic Times

The Impact on Dealers

This oversupply of vehicles has put significant financial pressure on car dealerships. With unsold inventory piling up, dealers face challenges in managing cash flow and meeting their financial obligations. They are resorting to heavy discounts and promotional offers to clear the stock, which can erode profit margins. Many automakers, like Tata Motors, have restructured targets to adjust the stock burden on dealerships, while others are focusing on clearing older models through increased promotions.

New model launches and special editions are also being leveraged to drive showroom traffic, offering potential buyers an incentive to consider other available models alongside these fresh releases. Vehicles like the 2024 Maruti Suzuki Swift, Hyundai Alcazar, and Mahindra 3XO, as well as special editions from multiple automakers, are generating significant interest. However, most new models are in high demand and do not suffer from inventory overhang.

Outlook for Indian Car Dealerships

Dealerships hope the Diwali season will clear most of the current stock, and FADA is optimistic about improved sales continuing into November. However, the overall sentiment remains cautious, as several external factors have impacted auto sales over recent months, including a prolonged election season, extreme weather, and regional floods.

The Road Ahead

To address the overstocking issue, automakers and dealers may need to adopt a more cautious approach to production and inventory management. This could involve adjusting production schedules, offering more attractive financing options, and implementing innovative marketing strategies to stimulate demand.

As consumers, this presents an opportunity to negotiate better deals and secure significant discounts on new cars. However, it’s essential to carefully consider your needs and budget before making a purchase. The Indian auto industry is undoubtedly going through a challenging phase. However, it can emerge stronger and more resilient with the right strategies and adjustments.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.