Dealers Edgy As Automakers Go All-Out During Festive Season In Virus-Marred Year

The festival season is crucial for businesses in India. Yet, Vipin Pachauri isn’t sure he’ll be able to sell his inventory of automobiles this time around.“Festive sales are going to be a big driver in the market, and there’s a slight positive sentiment, but we don’t know yet if it’s pent-up demand,” Pachauri, 70, an auto dealer in Delhi-National Capital Region, said. He has an inventory of a month and a half. That’s a challenge amid uncertainty brought about by the Covid-19 pandemic which has led the economy into a rare recession.Pachauri isn’t alone. Dealerships across the country are worried as heightened inventory levels pushed by automakers for the upcoming festive season could hurt them if sales fail to meet the estimated rush. The makers of cars and two-wheelers—grappling with the worst slowdown in more than two decades even before the pandemic—are trying to push sales during this crucial period as the Covid-19 outbreak stalled production and washed out sales earlier in the year.Inventory levels at two-wheeler dealerships are as high as 45-50 days and for passenger vehicles, it stands at 35-40 days, according to data provided by Federation of Automobile Dealership Association. This is also evidenced by September wholesale and retail sales data parsed by BloombergQuint.Makers of cars to utility vehicles expect 15-20% growth in sales this festive season, according to analysts and dealers BloombergQuint spoke with. They said companies are pushing higher inventory to dealerships to ensure there’s no shortage if sales pick up or when production hits a roadblock if factories shut down because of outbreaks.The confidence among vehicle makers stems from the fact that there has been a pent-up demand after lockdowns have been relaxed and the rural market has seen good pickup, Ashish Modani, vice president and co-head at ICRA, said. “These factors are making automakers really bullish and they’re expecting good festive sales.”Maruti Suzuki India Ltd., the nation’s biggest carmaker, produced 97,768 units in July. It has already increased its dispatches to dealerships to 1.47 lakh units in September—a 33% year-on-year growth, according to data from the Society of Indian Automobile Manufacturers. Hero MotoCorp Ltd., the No. 1 two-wheeler maker, produced 5.06 lakh units in July, and has ramped it up to 6.97 lakh as of September,Dealers, however, aren’t as optimistic.BloombergQuint spoke to a dozen auto dealers across India who expect a muted pick-up in the upcoming festive season and hope to match the last year’s sales levels, at most. All of them spoke on the condition of anonymity fearing repercussions to their business. They said inventory levels shouldn’t cross 20-30 days under present scenario.A Delhi-NCR-based dealer for Maruti Suzuki India Ltd., who’s facing an inventory of 45 days, said he would have preferred 25-30 day worth inventories.A Lucknow-based dealer for Bajaj Auto Ltd. said there’s no “boom” as anticipated by automakers and that he’d prefer lower inventory levels. In the absence of a pick-up in retail sales, this dealer said, there will be a huge burden.A Mumbai-based dealer of Hero MotoCorp Ltd. said higher inventory levels are a concern at a time when margins are low. He was worried that any spike in Covid-19 infections could deal them a blow.A Delhi-based dealer Hero MotoCorp, who has an inventory level of more than 40 days, said manufacturers are dumping inventories on dealers and if sales don’t happen to the level of the hype, they’re in for a rude shock. During Onam and Ganesh Chaturthi, sales failed to meet expectations, this dealer said.Maruti Suzuki, Bajaj Auto, Hero MotoCorp and Hyundai have yet to respond to BloombergQuint’s emailed queries.“In the automotive value chain, automobile dealerships are among the worst-impacted segments during the current downturn,” ICRA said in a recent report, adding the profitability of dealerships is expected to be at a multi-year low in FY21 because of a sharp decline in volumes. 'It anticipates closures. “Given muted volumes, high fixed overheads and rising inventory levels, the overall credit stress is likely to remain high in the sector with few dealerships likely to witness closure.”Vinkesh Gulati, president of FADA, urged manufacturers and dealers to avoid building up any further inventory as it could lead to a disastrous situation like last two festive seasons when sales were below the mark. “Any dampener in vehicle sales during the upcoming festivals will have a catastrophic impact on dealers’ financial health.”Pachauri—who refused to reveal his dealership name fearing business repercussions—has already shut a workshop and stockyard that were on rent to mitigate the impact of Covid-19 on his business.“When everyone is hard-pressed, and cash flow is impacted due to Covid-19, I wouldn’t have preferred more than 25 days of inventory,” he said. “We’ll be severely impacted if the festive demand doesn't meet the same levels as OEMs anticipated.”.Banks, NBFCs Deal Another Blow To India’s Battered Auto Industry

Dealers Edgy As Automakers Go All-Out During Festive Season In Virus-Marred Year

Dealers across the country are worried as higher inventory levels could hurt them if sales fail to meet the estimated rush.

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