FADA report raises concerns on growing passenger vehicle inventory despite growth in sales

The Federation of Automobile Dealers Associations (FADA) recently released data for the month of July which raised concerns about the growing levels of passenger vehicle (PV) inventory despite a growth in sales. According to the FADA data, PV sales for July grew by 13.70% month-on-month (MoM) however, inventory levels came in at historic highs of 67-72 days which is equivalent to stock worth ₹73,000 crore.

The report stated that the growing inventory levels pose significant risks for dealer sustainability and calls for exercising more caution. C.S. Vigneshwar, vice president of FADA, said “FADA urges PV OEMs to be vigilant about potential dealer failures due to these high inventory levels. “ He added that the Reserve Bank of India should implement stringent checks and dealer consents or collaterals prior to releasing inventory funding.

FADA’s report highlighted that the growth in passenger vehicle sales mainly came through new model launches along with attractive pricing strategies. Further, dealers benefitted from better product availability, attractive schemes, and competition.

From a segment point of view, the two-wheeler segment grew 17.17% year-on-year (YoY) while the three-wheeler segment clocked in growth of 12.88% YoY. Meanwhile, the tractor segment was the only segment that declined as it fell 11.95% YoY. The commercial vehicles segment saw an uptick of 5.93% YoY. The automobile industry faced several challenges during the period including erratic monsoons and weak consumer sentiment.

Additionally, higher financial strains and growing dealer inventory have also been a hindrance for the industry.

In the near term, the festive season will likely provide a push to retail auto sales across segments. Moreover, new launches and ongoing sales promotions will further promote growth. However, the automobile industry will keep a cautious optimistic outlook for the near term due to lackluster customer inquiries and any potential disruptions due to heavy rains.

The total retail segment for July 2024, grew by 13.84% YoY to 20,34,116 units.