The slowdown in the auto sector has seen a major pile-up of inventories with dealers over the past months, which will get more and more difficult to clear as the BS6 deadline comes closer. However, the recent steps taken by OEMs to reduce wholesale billing of PVs to dealers have helped reduce inventories to 25-30 days in July 2019, according to the data shared by the Federation of Dealers Association (FADA). The inventory level is down from the 30-35 day period in June this year and is now closer to the suggested timeline of a 21-day inventory level by FADA.
While the inventory has reduced for passenger vehicles, the average inventory remains largely unchanged for the commercial vehicles that still ranges between 55-60 days and that for two-wheelers ranges between 60-65 days. Both continue to be at their highest. The current weak demand for vehicles, especially in the CV segment, has given dealers little room to clear existing inventory.
In a statement, FADA urged that the manufacturers to help regulate this inventory at the earliest by regulating wholesale supplies. The concern gets even more grave considering that the transition to BS6 norms is now just six months away, and would leave crores of the unsold BS4 inventory obsolete. Speaking about the two-wheeler inventory, FADA said that this segment too had a slight reduction and the high levels have remained consistent month-on-month ever since the slowdown in September 2018. The massive inventory threatens the financial viability of the dealers and is a serious concern for the members of FADA.
Commenting on July 2019 performance, Ashish Harsharaj Kale, FADA President said, "Consumer Sentiment and Overall Demand Continued to be quite weak across all segments and most geographies. The July sales continue to be in the Negative zone YoY. Although Some respite was seen with growth in MoM numbers which was mainly due to revival of the monsoon bringing some positivity and also June having the 2nd lowest volume base this calendar year after February. With June being a completely dry and rain deficient month, Consumer Sentiment was at its lowest and with July rains covering up a lot of the deficit, some confidence in consumer demand led to pending purchase conclusion in July. Despite these factors, CV sales continued to be in the negative even MoM."
Retails sales continued to remain in red for the month of July 2019 across most segments, while the three-wheeler space grew by three per cent year-on-year with 55,850 units sold. The two-wheeler space saw 13,32,384 unis being sold in July, down by five per cent; whereas the CV segment witnessed a 14 per cent drop with 23,118 units sold. PV sales dropped by 11 per cent in July 2019, with 16,54,535 units sold.
That being said, FADA is betting on a positive monsoon and the upcoming festive season to bring a revival in sales. The auto industry also met the Finance Minister recently requesting a temporary reduction in GST rates to spur immediate demand. In addition, manufacturers have also asked the government to provide an attractive scrappage policy, while continued liquidity availability and building confidence in the banking and NBFC sector have been some of the suggestions by the OEMs to revive the auto sector.