INDIA REPORT
The Indian automotive market is grappling with a significant inventory challenge, with passenger vehicle stock levels reaching 55 to 60 days’ worth, equating to approximately 550,000 to 600,000 unsold vehicles as of May 2024. This rise in inventory has been a concern for auto dealers, who are already feeling the strain from prolonged high inventory levels. During the previous festive season, inventory levels surpassed 60 days, prompting the Federation of Automobile Dealers’ Associations (FADA) to request reductions in stock dispatches from OEMs and the Society of Indian Automobile Manufacturers (SIAM).
The increasing inventory is placing considerable financial pressure on dealerships. Longer inventory holding periods impact cash flow and increase interest costs, making it challenging for dealers to manage their finances effectively. In response to this growing issue, FADA plans to approach SIAM to advise its members on moderating stock inflow and addressing the inventory surplus.
Despite a strong start to the year with notable sales growth in early months, the high inventory levels, combined with market uncertainties such as election-related delays and adverse weather conditions, are likely to dampen immediate sales performance. However, there is cautious optimism that the upcoming festive season could provide a much-needed boost in demand, helping to alleviate some of the inventory pressure and stabilize the market.
Source: Financial Times Read The Article
PSR Analysis. The current inventory levels in the Indian automotive market highlight a critical issue of imbalance between supply and demand. The elevated stock of unsold vehicles not only burdens dealerships with higher holding costs but also signals potential disruptions in the supply chain and market dynamics. Effective inventory management and strategic coordination between OEMs and dealers are essential to mitigate these challenges.
The proactive stance of FADA in addressing the inventory issue and seeking intervention from SIAM underscores the urgency of the situation. The ability to manage and reduce inventory levels will be crucial for maintaining dealer profitability and ensuring market stability.
Looking ahead, while the festive season may offer relief through increased consumer demand, sustained efforts in inventory management and market adaptation will be necessary. The automotive sector must navigate these challenges carefully to balance stock levels and support overall industry health. PSR
Aditya Kondejkar is Research Analyst – South Asia Operations for Power Systems Research
