BQ Survey | No End To  Slowing Auto Sales In July, Say Dealers
A Mahindra and Mahindra Ltd. XUV500 sports utility vehicle (SUV), from left, Thar SUV and Scorpio SUV stand on display at a NBS International Ltd. dealership in Mumbai. Photographer: Vivek Prakash/Bloomberg

BQ Survey | No End To Slowing Auto Sales In July, Say Dealers

Car and two-wheeler sales declined again in seasonally weak July, according to a BloombergQuint survey of 10 large automobile dealers, suggesting consumption and discretionary spending hasn’t revived.

Inventory levels of two-wheelers remains higher than that of cars, the survey revealed. While the average inventory period for cars was around a month, the period for two-wheelers was nearly twice that, the dealers said. Retail demand is yet to pick up, they said.

“The weak demand over the last few months was compounded further as customers tend to avoid making a new purchase during the monsoon,” said Vinkesh Gulati, director of Lucknow-based United Automobiles told BloombergQuint. “As a result, customer walk-ins along with queries, too, have reduced considerably.”

Sales could decline by at least 15-20 percent over the previous year in July, a large automobile dealer said on the condition of anonymity. The dealer didn’t want to be identified out of business concerns.

India is in the midst of an auto sector slowdown that started around the Diwali festive season last year. That forced automakers to lay off workers and shut showrooms across the country.

With slowing sales, auto dealers are finding it difficult to deal with banks, according to Nikunj Sanghi, managing director at JS Fourwheel Motors Pvt. Ltd. “Banks have become very cautious in lending to dealers against inventory. As a result, a lot of dealers are finding it difficult to operate in the current environment,” he told BloombergQuint. “This problem isn’t just specific for a particular brand or region but is seen across the industry irrespective of the size of the dealership.”

He attributed slowing sales to aggressive expansion in dealer touchpoints over the past few years, resulting in multiple dealerships in the same locality, increased competition and reduced profitability.

That forced dealers to resort to discounting. “In order to tackle the excess inventory in the system and high competition, dealers had to indulge in discounting which has taken a big hit on their pockets,” Ashish Kale, managing director, ‎Provincial Automobiles Company Pvt Ltd., said.

The lack of demand and rising competition is impacting dealers’ credit profile. “Consumer sentiment, too, has remained extremely poor and in the absence of any support from OEMs (original equipment makers), dealers have found it extremely difficult to find buyers in the current market,” said Kunal Vikram Singh, who runs a Royal Enfield dealership in Mumbai.

Wholesale Volumes To Decline

Nomura expects wholesales volume for the entire industry to decline in July. The brokerage estimates the decline in sales of passenger vehicles, heavy commercial vehicles and two-wheelers at 24 percent, 14 percent and 10 percent, respectively.

Discounts, particularly for medium and heavy commercial vehicles, have risen sharply in the month, Nomura’s ground checks reveal. Volume performance is expected to remain weak across segments due to a high-base effect, increasing cost of vehicle ownership, monsoon deficit and financing issues, said Raghunandhan NL, auto analyst at Emkay Research.

Analysts also expect the slowdown to continue. Volumes could decline up to 26 percent year-on-year in July, according to BloombergQuint’s separate poll of three brokerages.

BQ Survey | No End To  Slowing Auto Sales In July, Say Dealers

Here are the factors, according to Nomura, that could impact wholesale volumes for individual automakers:

Maruti Suzuki

  • Weak retail demand and inventory correction at dealerships to affect wholesales.

Ashok Leyland

  • Weak demand and high inventory to impact medium and heavy commercial vehicle growth.

M&M Tractors

  • Growth trajectory to remain weak on poor demand and high inventory.

Bajaj Auto

  • Domestic two-wheeler segment to benefit from market share gains, but domestic three-wheeler sales may fall 14 percent.

Royal Enfield

  • Volume growth to remain slow on weak demand.

Hero MotoCorp

  • Weakness in retail sales to impact wholesale despatches.
BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.