Early festival upset bodes ill for automobile sector

PV stocks are currently at over 70 days, while some two-wheeler dealers have inventory for nearly three months. Several dealers have been forced to lease extra warehouse space to park surplus vehicles. With the market slowdown in September and the shraadh period considered inauspicious potentially curbing limiting sales further, hopes now rest on Navratri, starting on 3 October.

“Even with good growth, we will be left with excess inventory after the festive season," said Vinkesh Gulati, director of United Group, an auto dealership group based in Delhi, indicating the scale of the challenge.

In Maharashtra, traditionally a strong market during Ganesh Chaturthi, demand was sharply below expectations. A local dealer described the situation as bleak: “Ganesh Chaturthi hasn’t gone well. So far, we are not that excited for Navratri either," he said, pointing to subdued market activity. “The market is not picking up that much. Next month, there are a few launches like Mahindra’s Thar Roxx, which may help specific brands, but overall, I don’t think the festive season will be great this time."

The dealer said sales during Ganesh Chaturthi were only 70% of last year’s figures for his outlets selling four mass-market and mass-premium PV brands. “The tempo hasn’t picked up. There’s no excitement coming in."

Dealers in Kerala, where Onam usually heralds a spike in sales, echoed similar concerns. “We saw about a 10% year-on-year decline in sales during Onam, and Ganpati was nothing great," a dealer from the southern state noted. “By now, if things aren’t moving, I really have my doubts about next month. The market has run out of steam." Absence of any new exciting products from brands such as Hyundai and Maruti Suzuki might be a factor, while other brands with new launches could see some traction, he said.

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According to Ravi Bhatia, president of JATO Dynamics India, an auto intelligence company, companies have three levers to push demand generation, should the pull or consumer demand slacken.

"The levers are new model launches, price suppression (given as discounts in the form of cash or other services), and price cuts, which are usually the last resort. For the last three months, dealers had been voicing concerns regarding a demand slowdown and high inventory, and original equipment manufacturers (OEMs) have gradually responded by making offers more attractive. The shraadh period spanning both September and October makes sales closures for September challenging. As a result, some OEMs have added booking offers as well." Dealers are reporting a slowdown in customer visits, inquiries and bookings, he said.

For many brands, the weighted incentives on PVs in September have more than doubled from a year ago, JATO Dynamics data showed. (see chart).

The cool-off in demand, however, is not entirely surprising, given the record-breaking performances of the past two years.

Onam sales were quite tepid, said C.S. Vigneshwar, president of the Federation of Automobile Dealers Associations (FADA). "We can’t expect a bumper harvest every year, and the last two years were excellent. The slower growth we are seeing could be a natural correction," he said. He also cited factors such as floods in Wayanad may have dampened sentiment in the state.

Vigneshwar also voiced concern about hefty stocks. “We have more stock than what we are comfortable with," he admitted, noting that FADA has already raised the issue with manufacturers, urging them to help liquidate excess inventory.

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Nikunj Sanghi, founder and managing director of JS Fourwheel Motors, a Mahindra dealer in Rajasthan, shared similar concerns, particularly about inventory management. “Sentiment is positive right now, but nowhere near what OEMs are expecting. We’ve had to hire three warehouses to stock up. This is the first time we’re doing this," he said. “Inventory levels are alarming, and no one is stopping (dispatches)."

Sanghi warned that while Navratri and Diwali could revive demand, it may not be enough to clear surplus inventory. “Everything is packed between 3 to 30 October. While there will be growth, it won’t be as positive as expected. We will likely be left with surplus inventory," he explained.

Adding to the complexity, Gulati pointed out that the structure of the festive season is different this year. “Last year, the festive season was split in two. Now, everything is riding on one month," he said. Although he remains optimistic about growth in non-election states, he tempered his expectations. “There won’t be very high growth. Inventory will likely increase again, and even after the festive period, I’m not sure we’ll return to normal inventory levels."

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