FADA urges OEMs to offer dealers additional benefits for deadstock liquidation

A vehicle staying in a dealership’s inventory for more than 60 days, and a spare part lying idle for over a year, are considered as deadstock, hampering the dealer’s ability to utilise the working capital to procure more products.

By Mayank Dhingra calendar 21 Sep 2023 Views icon4389 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
FADA urges OEMs to offer dealers additional benefits for deadstock liquidation

The Federation of Automobile Dealers Associations of India (FADA), which released its Dealer Satisfaction Study (DSS) 2023 on September 20, has urged vehicle manufacturers to offer some additional benefits to help dealers liquidate deadstock.

A vehicle staying put in a dealership’s inventory for more than 60 days is considered as a deadstock, which ends up hampering the dealer’s ability to utilise the working capital to procure and sell more products. “If a vehicle stays in the stockyard for anything more than 30 days, a dealer starts losing money on it,” Manish Raj Singhania, President, FADA, told Autocar Professional.

“Therefore, what we require is some additional scheme from the OEM towards the liquidation of a vehicle which has stayed in the dealer inventory for around 60 days,” he added. According to Singhania, customers expect heavy discounts on such an old stock, and that cannot be fulfilled solely from the dealer’s margin on a vehicle.

“The vehicle as well as the working capital get stuck, and that is where we need some support from OEMs, across categories, be it cars, two-wheelers, or commercial vehicles,” Singhania said. He also raised the broader dealer issue of high levels of unsold spare parts inventory, which leads to the bottleneck of working capital.

PLENTY OF DEALERS' CAPITAL BLOCKED IN SPARE PARTS 

“Almost 95 percent of the OEMs do not have a policy to buy back spare parts. While OEMs try to map the spare parts requirements based on the demand in various markets, sometimes, spares are randomly billed and a lot of capital gets blocked in spares,” Singhania said. 

“If a part does not sell for 12 months, an OEM should buy them back from a dealer at a negotiated price, and transfer it to another outlet in another geography, where the demand for that part is much higher in comparison,” he added. Singhania explained that dealers incur heavy losses in scrapping unused spare parts, which keep sitting idle in their inventory due to lack of proper monitoring, or the expertise to manage spare parts.

“Working capital is a big constraint for automobile dealers, and it gets stuck in these areas. While technology will help dealerships better monitor spare parts, if the part is not moving anywhere, there should be a defined buyback policy from the OEM,” he said.

DEALERS GUNG-HO ABOUT FESTIVE SEASON 

The FADA president also stated that most automobile dealers across the country are upbeat about the ongoing festive season, which promises strong customer demand due to the positive sentiment in the market. Gearing to cater to expected high demand for new vehicles during the upcoming Diwali and Navratra festivities, dealers have been stocking up warehouses, which is reflected in the sharply rising wholesales numbers from vehicle manufacturers.   

“We are seeing inventory levels reaching as high as 62 days in the passenger vehicle segment, which is unheard of. Nobody wants to miss the bus this time around, and dealers are confident of the inventory getting liquidated and coming back to normal towards the end of the festival season,” Singhania pointed out. 

Expect India Auto Inc to announce very strong September 2023 wholesale and retail numbers in early October.  

ALSO READ: India Auto Inc’s August retails up 9% at 1.81 million vehicles, growth comes to all segments 

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