Multiple reasons such as increased car prices, inflation and preference for newer models could be responsible for the high inventory
In a worrying development, reports indicate that car dealers have inventory of 80-85 days. This is an all-time high number and impacts dealers of most car brands. Even the festive season seems to have failed to bring any major respite from the high inventory.
Inventory piling up since May 2024
Data indicates that inventory at the dealer level has been piling up since May. Around 790,000 unsold units are parked at dealerships, which is estimated to be worth around Rs 79,000 crore. One of the reasons could be the high number of dispatches to dealerships at a time when sales are lower than usual.
It is common for dealers to increase their inventory during the festive season, owing to the expected high demand. But sales data from FADA for September reveals that car sales registered negative growth of -18.81%. If this situation continues, dealerships may start facing cash flow issues.
Low demand for Rs 10-25 lakh cars
After the pandemic, sales growth was driven by cars in the Rs 10 lakh to Rs 25 lakh price bracket. However, the numbers have reduced in recent months. Only exception are the premium segment models that continue to register consistent sales. Earlier, a similar situation was seen with small cars that had the highest inventory. This segment was facing low growth over the last two years. However, by reducing production and dealer dispatches, carmakers were able to prevent the situation from worsening.
October, November sales to the rescue?
FADA is hopeful that car sales in October and November could be better than previous months. Robust sales during Dussehra and Diwali could significantly reduce the huge inventory at the dealerships. Since exact data is not available, it is difficult to ascertain which car brand has the highest dealer inventory.
However, Maruti Suzuki being the largest carmaker, it can have the highest dealer inventory in terms of overall volumes. When estimated as per percentage of monthly sales, brands with relatively lower sales could have the highest dealer inventory. That includes names like Nissan, Citroen and Jeep.
High inventory issue more with older models
Sales data reveals that car buyers are investing their money in newer models. Some examples include Maruti Fronx, Maruti Swift, Tata Curvv, Hyundai Alcazar, Mahindra XUV3XO and Thar Spray. All of these have been registering strong growth since their launch. None of these have any high inventory issues. Increased demand for newer models presents the possibility that the high inventory at dealerships could include a large number of older models.
Extreme weather events could also be a reason for slow car sales since May 2024. A hot summer, followed by heavy monsoon rains could have prompted car buyers to postpone their purchase decisions. With the weather now more acceptable across most parts of the country, car sales could register positive growth in coming months.
