Sales in February fall to new low, dealer inventory level unsustainable, says FADA

The month of February 2019 has continued its disappointment for the automotive retail industry. If the numbers are any indication of the months to come, India Auto Inc will need to revamp its strategy to bring back consumers.

The Federation of Automobile Dealers Associations (F A D A) today released the monthly vehicle registration data for February 2019 which, according to the association, is a new low as the weak consumer sentiment continued for the sixth month in a row.

In the month a total of 1,452,078 vehicles were sold across categories, which translated to a dip of 15.3 percent over January 2019, and a negative growth of 8.06 percent on YoY basis. This includes sales of 1,125,405 two-wheelers (-13.45% MoM); 50,263 three-wheelers (-7.38%); 61,134 CVs (4.92%) and 215,276 PVs (-28.62%).

Commenting on the February numbers, Ashish Harsharaj Kale, president, FADA, said: “After a month of spike in passenger vehicle sales in January which was largely due to year-end stock clearance getting extended and few new launches generated some excitement. The industry is once again witnessing downward trend as February turned out to be one of the slowest month for automotive retail sales during this financial year. Indian auto sales are experiencing a prolonged slowdown as its already seen 6 months of slowing sales and growth reversal and positive triggers in the near term appear few."

He further mentioned that starting with the huge hike in insurance costs in September 2018, the industry has seen a lot of negative factors come together in the last few months, which has led to huge postponement in purchase decisions and overall weakening of consumer sentiment. Kale said that dealerships in India currently have high stock situation across all categories, and in particular the inventory levels of PVs and CVs, which had seen partial correction in the last two months are now back to the "unsustainable levels" seen in November 2018. 

Stock at two-wheeler dealerships at "alarming proportions"
The auto retail body highlights that for two-wheeler dealerships the situation is no different but in fact it expresses serious concern, as it now reached "alarming proportions" and in some geographies has breached the unheard-level of 100 days of stock. 

“FADA believes, as does the entire auto industry, that the dip in demand is temporary and India will continue to be amongst the fastest growing auto markets in the world. Having said that, navigating smoothly out of the current slowdown is the need and the entire auto ecosystem, including dealers, will have to and already are in a cost regulation mode, till the industry returns to vibrancy,” added Kale.

He further mentioned that the industry is already facing a substantial increase in operational costs due to a number of factors as well as the increase in working capital needs and this was in addition to the tight liquidity environment. Kale said that prolonged maintenance of such high inventory and its additional costs is unsustainable and with demand continuing to be a challenge the dealerships are urgently looking to reduce their inventory in the months of March and April.

Given the present environment, FADA has urged OEMs to take a realistic stock of the present retail situation and recalibrate their production to regulate dealer invoicing in the coming two months that will facilitate return to stock normalcy for dealerships. This, he said, would help maintain a sustainable business environment till the industry again hits the high growth trajectory. 

According to a survey conducted by FADA among its members, the present inventory levels is: 
- PVs ranges from 50-60 days
- 2W ranges from 80-90 days
- CV ranges from 45-50 days

Also read: Weak market sentiment set to limit PV growth to 3 percent in FY2019