While the performance during the month gave OEMs something to cheer, the inventory level situation could turn tricky if the market demand falls short of expectations
03 Oct 2020 | 5600 Views | By Sumantra B Barooah
September was another month of sequential growth in India’s two-wheeler and passenger vehicle (PV) markets. Almost all players registered growth during the month. While the performance during the month gave OEMs something to cheer, the inventory level situation could turn tricky if the market demand falls short of expectations by ...
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September was another month of sequential growth in India’s two-wheeler and passenger vehicle (PV) markets. Almost all players registered growth during the month. While the performance during the month gave OEMs something to cheer, the inventory level situation could turn tricky if the market demand falls short of expectations by an uncomfortable margin.
Compared to the previous three months’sales, the September despatches by OEMs in the industry were largely in anticipation of a good festive season. The month preceding the big festive season usually sees inventory build up to unusual levels, in most cases. However, according to a well established dealer, last month saw “an unhealthy inventory build up”in the market. What could be a dampener in liquidating the stocks fast enough is the presence of ‘adhik maas' ’this year, an extra month in the Hindu calendar during which new acquisitions are usually avoided. This period will end on 16th October. It’s to be noted that the ongoing ‘adhik maas’was preceded by ‘Shradh’, from 1st to 17th September, also a slow period in terms of sales.
“We still have to see how things progress, but what we find is that the customer is in urgent need of a car. Because of the pandemic the car has become a very important necessity more than anything else. I don’t think too many customers will wait till Navratri. Necessity may find precedence over the current period’s inauspiciousness,” said Tarun Garg, director – sales, marketing and service, Hyundai Motor India, in an interview with Autocar Professional last month. Hyundai recorded sales of 50,313 units in the domestic market last month, registering an over 23 percent YoY growth.
The two-wheeler and passenger vehicle markets have been witnessing a good pick up with the start of Unlock 1.0 on 1st June. With the pent demand being largely met, the players are betting on the demand for personal mobility, triggered by the pandemic, and the upcoming big festivals of Navratri, Dussehra this month, and Diwali next month. However, there’s also a concern over the affordability levels of many customers in the current economic scenario which has also triggered consumers to conserve cash more than earlier. With such a backdrop many would be cautiously optimistic for the big festive season that begins this month. With demand in the past three years’ festive seasons being lower than expected, a lot rides on this year’s festive season.
With this backdrop, the focus on optimal inventory build up would be even more this year. “We should not have any unnecessary cost in the system. All of us are very conscious of it. Our network stock has come down over the past 4 months. We intend to keep it at a very optimum level,” said Garg.
Given that dealers pay interest rates ranging from 10 to 14 percent on loans, an optimal inventory level is what they are batting for too. A dealer of a mass market two-wheeler OEM pointed out that there’s good scope for inventory level to be brought down, without losing market opportunities. He pointed out that the sales at his dealership during the June to August period was around 95 percent of the volume during the comparable period last year, with 1/7th of the usual inventory level.
The Indian automobile industry fought a tough battle to clean up an inventory pile-up problem during 2018/19. That’s the last thing players would like to see again, in an already pandemic hit market. “We all, individually and as FADA have understood that this is one cost which is a burden on us. We are close to two years after the November 2018 inventory challenge. Everyone has learnt it the hard way that this is not a beneficial thing for us,” said Vinkesh Gulati, president, FADA in an interview earlier.
Some dealers say that it’s the inventory build up so far is not too different this year, at least for the OEMs they deal with. Excess stocks in the market could also force dealers to sell products on discount. “We need to be extremely cautious about inventory for two reasons, because – 1) dealerships are fragile in terms of their finances. 2) when it comes to dealer viability on low volumes what we have been experiencing then low inventory levels will help in addressing at least some part of that concern,” says Nikunj Sanghi, MD of J S Fourwheel Motors, a dealership in Alwar, Rajasthan.
On the industry’s ongoing performance, John Paul, MD of Popular Vehicles in Kochi, says that there’s a positive movement in the industry but he’s unsure of how long it will continue. He also adds that some fiscal stimulus, like a tax reduction for a limited period maybe, by the government will help sustain the improvement in the fortunes of the Indian automobile industry, which is also the third largest employment generator in the country. For now, the immediate hope for industry players will be to have an optimum inventory level, and a festive season that’s better than the ones in the past three years.
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