Auto dealers expect flat or marginal growth during festival season

 (Mint file)

With consumption demand not showing any signs of recovery in the domestic market, automobile dealers do not expect sales to grow significantly during the current festival months (September and October), against last year. Most of them are gearing up for a flat or marginal growth for the second successive year.

Last year, automobile manufacturing companies experienced one of the worst festival season sales in the last five years, in the aftermath of the bankruptcy of IL&FS and the lack of liquidity in the banking system.

According to Ashish Kale, president, Federation of Automobile Dealers Associations (FADA), sales during the upcoming festival season are expected to remain flat or grow marginally, compared to last year, since dealers are not confident and have taken a cautious approach before taking stocks from the manufacturers.

Sales of automobiles during the festival months comprise almost a third of the total vehicles sold during a particular year. Last year in July and August, automakers substantially increased dispatches of vehicles to dealerships, compared to the retail demand, expecting robust sales, but ended up with huge inventory as retail sales tanked.

Original equipment manufacturers (OEMs) started to witness decline in sales of vehicles since July 2018, as regulatory changes such as enhanced safety regulations, lack of credit availability from the banks and non-banking financial companies (NBFCs) had an adverse impact on the overall consumer demand. The slowdown intensified since the beginning of the current financial year as wholesales declined by double digits.

“Last year, retail sales in September were still fine and passenger vehicle sales began to decline at the end of the month. This time we won’t see huge growth and wait for the measures announced by the government to make an impact. It is tough to say whether the measures will have the desired impact or not just after 10 days,” added Kale.

The muted expectation of dealers come at a time when vehicle manufacturers such as Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Mahindra and Mahindra Ltd and others reported a double-digit fall in wholesale dispatches to dealerships in July and August before the festival season kicks off with Ganesh Chaturthi in the western states and Onam on 12 September in southern states, especially Kerala.

Maruti’s domestic wholesales in August declined significantly by 35.9% year-on-year to 94,728 units. This is the third time the company pushed less than one lakh vehicles to its dealerships in a particular month since July 2017. Vehicles dispatched by the top six passenger vehicle manufacturers during the same period declined by 34% year-on-year to 171,193 vehicles.

According to data released by the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales in July fell significantly by 31% to 200,790 vehicles. It was the worst sales performance since a 35% decline in December 2000.

One of the most important reasons behind the slowdown had been the lack of credit options available to both customers and dealers alike from banks and NBFCS as financial institutions tightened their respective credit norms.

“The pressure on dealers for capital is still on, but it has improved from the past. NBFCs used to fund 15-20% of our customers who came to buy vehicles for the first time and their credit worthiness aren’t quite high. These were the customers who use to give us the additional numbers,” according to Kale.

FADA is hoping that the GST Council will decide to reduce the rate of taxes levied on vehicles and that will be able to generate some demand in the coming months.

Expecting that customers will shy away from buying vehicles during the festival season, Maruti Suzuki has decided against dispatching stocks to dealerships during the festive season as inventory with dealerships has already exceeded by more than a month.