Passenger vehicle makers had a bumper 2023-24 financial year. But, almost six months into 2024-25, sales have hit the slow lane and inventories have surged, in turn also driving up discounts across the market. All eyes are on the upcoming festive season now when demand is expected to pickup, but the mood may not be as cheerful as last year.
Maruti Suzuki, the country's largest car maker, reported on Sunday that its domestic passenger vehicle (PV) sales in August were down 8.4 per cent from a year ago to 1.43 lakh units from 1.56 lakh units in August 2023.
Demand for sports utility vehicles (SUV) remains steady; Maruti's utility vehicle sales, in fact, rose 6.7 per cent to 62,684 units from 58,746 units in August. But, passenger car sales continue to see slow demand; sales last month were down 18.8 per cent to 69,406 units from 85,509. Over April-August, Maruti's PV sales declined 3.1 per cent, with car sales dropping 13.8 per cent.
Tata Motors' PV sales in August declined 3 per cent and Hyundai saw an 8 per cent decline in domestic vehicle dispatches. Honda Car India's domestic sales slipped 32 per cent, even as exports boosted overall volumes. In contrast to these companies, companies like Mahindra, Kia, Toyota and MG, which predominantly have a SUV-led portfolio have seen good wholesales last month.
"Following strong growth in last 2-3 years, PV OEMs (original equipment manufacturers) are individually aiming for high growth (around double-digits) even as industry growth trends/outlook are moderating to a low single digit. This, in turn, is resulting in inventory build-up with dealers across OEMs and segments," noted Chirag Jain of Emkay Global Financial Services.
In a recent interaction with THE WEEK, Manish Raj Singhania, the president of Federation of Auto Dealers Association (FADA), had said the number of days of inventory had doubled.
According to FADA, PV inventory was at historic high of 67-72 days days, amounting to Rs 73,000 crore worth of stock as of July 2024. The rising inventory levels are in turn putting financial pressure on dealers. According to Singhania, a dealer starts to lose money on a particular model once the stock exceeds 30 days.
Companies are now adjusting their wholesales in this backdrop of slow retails and inventory pileup as the August sales data indicates.
Deep Shah, lead analyst at Yes Securities, noted that their channel checks indicated PV retails in August were likely to have fallen 6-8 per cent from a year ago.
"Overall sentiments remain weak as we note moderating offtake in SUVs while entry-level portfolio still sees no sings of recovery. The new launch impact too seems to be fading on walk-ins/ bookings due to seasonal factors as well as customer are elongating purchase decisions till the festive," he said.
Sluggish demand and rising inventory levels are driving up discount levels, with leading vehicle makers offering discounts ranging from around Rs 30-35,000 to over Rs 1 lakh.
As sales volumes moderate, revenue growth of auto dealers will likely slow to 7-9 per cent in the current financial year ending March 2025, after a "healthy" 14 per cent last year, according to credit ratings agency CRISIL.
"Lower sales volume growth has led to higher discounts and offers by OEMs and dealers over the past few months. While a large part of the impact is borne by the OEMs, this will pull down operating profitability of auto dealers to 3 per cent, a tad lower than the average of 3.5 per cent seen in the past three years," said CRISIL.
In the backdrop of slowing sales, prices increases this year are also likely to be muted at around 1-2 per cent, compared with 4-5 per cent in 2023-24, as dealers offer "generous discounts to prevent further pile-up of inventory," added CRISIL.
There have been several new launches over the last month. Tata Motors has launched the Curvv Electric SUV coupe in August, and the ICE (internal combustion version) of Curvv will follow this month. Citroen has launched the Basalt coupe SUV and Hyundai is gearing to launch the updated Alcazar SUV. Elsewhere, MG is readying the launch of Windsor EV and Tata is likely to drive in Nexon CNG variant.
With a good monsoon this year expected to boost rural demand, PV makers are upbeat of things picking up in the festive season that starts with Ganesh Chaturthi and Onam later this month.
