Stung by leftover inventory and unsure about consumer spending, India’s auto dealers are worried about having to discount more to boost demand in the upcoming festive season, a representative of the dealers’ body said on Thursday.
The double-whammy of higher inventory costs and deeper discounts are a nightmare for auto dealers as that has a direct impact on their profit margins.
“With our inventory already at record levels, buyers are expecting even higher discounts,” said Manish Raj Singhania, who is the president of the Federation of Automobile Dealers Associations.
The comments came after sales of unsold cars in the world’s No.3 auto market rose to a record 70-75 days in August, valued at 778 billion rupees ($9.27 billion). Discounts, too, are at an all-time high.
Singhania hopes inventory levels will come down in October, during the Navratri and Deepavali festive seasons where Indians typically tend to make big-ticket purchases.
Many buyers have deferred their purchases till October, hoping for higher discounts, FADA noted, adding that heatwaves in the summer months and heavy rains thereafter in different parts of the country have hurt showroom visits and delayed purchase decisions.
Indeed, dealerships’ sales of cars fell 4.5% in August, their third drop so far in the financial year that began in April.
The slump in car purchases by retail buyers contrasts an upturn in overall consumer spending, which hit a seven-quarter high in April-June.
Auto sales are seen as a key indicator of private consumption in the country. India’s auto industry forms 7% of the country’s GDP, as per government data.
While newly launched models, particularly sport utility vehicles, continue to sell at a steady pace, dealers are unable to sell older models, including SUVs, Singhania said.
“Manufacturers must make efforts reduce sales to dealers and not bill more than what is retailing,” he said.