BQ Survey | Autos May See Lower Inventory In June But No Sales Pick Up

Consumer sentiment has remained weak despite hopes of a revival after the general election, according to Vinkesh Gulati, director at Lucknow-based United Automobiles. “We were expecting sales to see a pickup post-election but that has not quite happened,” he said. “One of the reasons for this is consumers don’t prefer to buy a new car or bike right before monsoons.”

Sales remained tepid in June even as a brief spurt in demand was seen during the week coinciding with Eid festival. “The month started on a positive note with some slippage in sales over the previous month and temporary spike in demand due to Eid. However, post that sales have completely dried up,” said John K Paul, managing director at Chennai-based Popular Vehicles and Services Pvt. Ltd. “Sales at best would be on a par with the previous month provided some minute push on account of month-end,” he said. “This would roughly translate into a 10-15 percent fall in retail sales over the year.”

While the inventory pileup at car dealerships has reduced from its January-February peak due to production cuts by carmakers, it’s still higher compared with last year, said Nikunj Sanghi, managing director at JS Fourwheel Motors Pvt. Ltd. “We have to resort to giving customers some or the other form of deals to materialise sales.”

The second quarter, according to Sanghi, is always the worst for the industry due to the monsoon season which gives less confidence of a speedy recovery in sales.

Most carmakers have shut plants to cut output and initiate facility maintenance. While Maruti Suzuki India Ltd. had its annual maintenance shutdown of seven days in June, Mahindra & Mahindra Ltd. and Ashok Leyland Ltd. have also indicated plant shutdown of six to 13 days to control inventory levels, Nomura said.

Dealerships have come under extra pressure due to new store additions, affecting their profits. “This has resulted in heightened competition between dealerships in the same area or locality,” said Ashish Kale, president of Federation of Automobile Dealers Associations of India, and managing director at ‎Nagpur-based Provincial Automobiles Company Pvt. Ltd. “While the larger players with deep pockets have been able to tide through these tough times, the smaller and relatively new dealerships are in a very bad shape.”

Analysts also expect the slowdown to continue. Volumes could decline up to 25 percent year-on-year in June, according to BloombergQuint’s separate poll of three brokerages.

Nomura expects a sharp 17 percent drop in passenger vehicles sales and a double-digit decline in two-wheeler and commercial vehicle sales. The brokerage, in a note, said weak retail demand and inventory correction by most auto companies is the key reason for the drop in wholesales in June.