Auto dealers cautious despite strong October sales; warn about year-end discount war

Despite a stellar 32% jump in October festival season sales, Indian automobile dealers are bracing for challenging months ahead. According to the latest Federation of Automobile Dealers Associations (FADA) member survey, only 37.15% of dealers expect growth in November 2024, while 39.69% anticipate flat sales, and 23.16% forecast a decline. The cautious outlook comes as passenger vehicle inventories remain stubbornly high at 75-80 days of stock, setting the stage for potentially substantial year-end discounts across the industry.

According to the latest Federation of Automobile Dealers Associations (FADA) member survey, representing over 15,000 dealerships across India, dealer sentiment presents a mixed picture.

While 50.64% express positive market sentiment, a significant portion remain neutral (34.86%) or concerned (14.50%). The liquidity situation mirrors this pattern, with 48.35% reporting good conditions, 38.93% neutral, and 12.72% facing challenges.

Looking ahead, the Indian auto industry sees both opportunities and headwinds. An estimated 4.8 million weddings scheduled nationwide in November and December 2024 are expected to drive unprecedented demand for wedding-related purchases, particularly benefiting the two-wheeler and passenger vehicle segments.

Discounts Ahead?

However, the persistent high inventory levels in the passenger vehicle segment, which have decreased by only five days despite strong festival season sales, remain a significant concern. FADA urges manufacturers to rationalize supply, as the oversupply situation may force continued substantial discounting through the end of the calendar year.

The commercial vehicle segment faces particular challenges. Dealers remain vigilant due to sluggish construction activities, financial constraints among customers, and an anticipated decrease in demand post-festivities. Rising vehicle prices leading to higher EMIs have also impacted customer sentiment in this segment.

For two-wheelers, positive factors such as good crop yields, favorable rural sentiments, and the upcoming marriage season are expected to drive demand. The government's announcement of increased Minimum Support Price (MSP) for Rabi crops has further boosted market sentiments, particularly benefiting rural sales.

The urban-rural divide continues to play a significant role in sales patterns. In October 2024, rural areas accounted for 55.5% of two-wheeler sales, while urban regions dominated the passenger vehicle segment with a 61% share. This split highlights the different dynamics driving various vehicle categories across India's geographic spectrum.

The robust festival season performance is reflected in motor vehicle road tax collections, which reached Rs 9,707 crore in October 2024, showing a significant 33.4% increase year-over-year and a 63.2% jump month-on-month.

While the industry remains optimistic about near-term growth driven by the wedding season and favorable market conditions, dealers are mindful of potential challenges that could affect sales momentum as the year concludes. For passenger vehicles, while the marriage season and ongoing promotional offers are expected to sustain demand, there are apprehensions about potential slowdowns caused by customers postponing purchases in anticipation of better year-end discounts.

The mixed sentiments reflected in the survey highlight the need for strategic planning and cautious optimism as the auto sector navigates the remaining months of the year. The sector's performance in the coming months will largely depend on how effectively these various factors balance out in the market.