Car dealers may end up with 400K unit inventory as demand cools off

Carmakers expect to face a record inventory of 400,000 cars worth Rs 44,000 crore by the end of this month as demand in India cools after 3 years of scorching sales. With vehicle deliveries to dealers outstripping demand, passenger vehicle registrations, which are taken as a proxy for retail sales, are also expected to fall 5% in May compared to a year earlier. The possible drop, the second this year, comes amid uncertainty related to elections, the end of the marriage season and heat waves in several key markets, especially in Delhi NCR, said industry executives.

Automakers are expected to end May with wholesale sales or factory shipments to dealers of between 340,000 and 350,000 vehicles, an increase of 4-4.5% from a year ago. According to traders, the closures planned by some companies will help in moderating production volumes and managing inventory.

"Industry inventories before Covid were around 45 days. This has come down to 2-3 weeks after the pandemic. Industry inventories are high," said Hardeep Singh Brar, head of national sales, Kia India. Sales are expected to recover after the new government takes office. "The outlook for the monsoon is good. Interest rates are expected to fall later in the year, with inflation under control. Given the high base for the full year, sales growth is likely to be a single digit," he said.

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The domestic auto industry may end the month with network stock of around 400,000 vehicles, an all-time high in absolute terms, said an industry executive who requested anonymity. "It goes beyond the months leading up to the holiday season, when manufacturers bulk up stock," he said.

Brar expects industry car registrations to fall 10% sequentially in May, although the Korean automaker is likely to post growth supported by an updated product lineup. Brar said: "We have no plans to change our production or shipments, and we are not considering any reductions. Our products are competitively priced." Maruti Suzuki and Hyundai Motor India did not respond to ET's queries. Vinkesh Gulati, head of research at the Federation of Automobile Dealers Associations, believes that "the continued slowdown in June" and "the festive season, which begins in October, will be a trigger" for a revival in demand.

"Automakers need to be cognizant and pare production and support with incentives and credit to balance things," Gulati said. He added that due to high inventory levels, discounts and consumption plans in June are expected to increase by 15% to 20% compared to May. Some carmakers have cautioned of slowing sales and rising inventories during investor calls earlier this month.

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