The GST Council’s council’s recent announcement on the removal of compensation cess could lead to Rs 2,500 crore of losses, warned dealers at FADA’s annual conference.
11 Sep 2025 | 2372 Views | By Autocar Professional Bureau
India’s automobile retail segment enters the festive season weighing growth opportunities against operational challenges. Traditionally, automakers ramp up dispatches to dealerships ahead of Navratri and Diwali to capture a surge in consumer demand. Dealers, in turn, take on higher volumes in the expectation of rapid turnover and healthy cash flows. ...
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India’s automobile retail segment enters the festive season weighing growth opportunities against operational challenges. Traditionally, automakers ramp up dispatches to dealerships ahead of Navratri and Diwali to capture a surge in consumer demand. Dealers, in turn, take on higher volumes in the expectation of rapid turnover and healthy cash flows. But this year is different: high inventories, tax changes and softer demand are forcing retailers to rethink stocking strategies, even as the festive window approaches.
C S Vigneshwar, President of FADA, warned that the problem is structural as well as situational. “Inventory buildup is a big challenge. We’re talking of 21 days of inventory, at max. But right now the industry is at about 56 days. It’s time for us to take this up together as an industry. We’ve been speaking to OEMs that such high inventory doesn’t make any sense. It is a big pain for dealerships,” he said at the Federation of Automobile Dealers Associations' (FADA) 7th Auto Retail Conclave. Automakers also stressed that sharper inventory forecasting and digital tools would be critical to smoothing demand-supply imbalances.
Automakers acknowledge the strain but say forecasting must improve. Tarun Garg, Director and Chief Operating Officer at Hyundai Motor India Ltd (HMIL), called inventory a “necessary evil” in the auto trade. “Without inventory, you cannot sell. Without sales, you cannot make any profit. But it is my sincere request, irrespective of the market situation, that dealers must get into forecasting. Because it is money at stake,” he said.
He contrasted the current glut with the shortages of the pandemic years. From 2021 to 2023, dealers clamoured for more allocations and faced long waiting periods. Since mid-2024, geopolitical and macroeconomic headwinds have left them holding unsold stock. “Everything was waiting, and people would ask why you cannot forecast. Suddenly, from July 2024, things started to soften up. But next year when we meet, I am sure the question again will be, ‘Sir, please give me more cars,’” he said.
Hero MotorCorp’s Chief Business Officer Ashutosh Varma stressed that forecasting must become system-based rather than intuitive. “Multiple people trying to forecast very accurately will have their own sense of variability. There will be challenges. So, I guess in this age and time, there is a need to bring in a lot more systems, which can forecast for people a bit more accurately. And of course, all of us, especially on the OEM side, will have to make a concentrated effort to move from a wholesale-based environment to a retail-based environment,” he said.
The GST Council’s council’s recent announcement has made matters more complicated. Since the associated compensation cess on certain vehicles is to be removed and is expected to make entry-level vehicles cheaper, it has also created a once-off mismatch between vehicles already invoiced at higher tax rates and those to be sold at lower rates after the cut.
Dealers pay GST and compensation cess upfront when they buy vehicles from manufacturers (OEMs). They recover it from customers at the time of sale. With the upcoming tax cut, however, unsold stock will suddenly be priced at a disadvantage. By FADA’s count, around six lakh passenger vehicles are sitting in dealer yards, translating into nearly ₹2,500 crore of GST compensation cess paid, without any obvious channel of recovery.
“We bought inventory at one rate, and after September 22 we will have to sell it at another, without cess. That gap hits only the dealers,” FADA CEO Saharsh Damani said. In its advisory, FADA urged dealers to avoid ramping up orders despite the upcoming festival, to reduce exposure to high-cess inventory, and to exercise financial prudence. It also cautioned members against telling customers that vehicles would definitely get cheaper under “GST 2.0,” since the details of the tax overhaul are still unclear.
OEMs are turning to technology to address this. Garg pointed out that the nationwide adoption of the Vahan database, which records real-time vehicle registrations, could soon transform retail visibility. “With Telangana also joining in by January, probably all OEMs would want to shift fully to Vahan, which will again solve that problem. The GST cut, the festival coming in, the Vahan, and the market really kicking in well — all these things will take this problem away. But forecasting has to be dealer-driven too,” he said.
Mahindra & Mahindra has rolled out its own digital forecasting platform. Nalinikanth Gollagunta, CEO of M&M’s Automotive Division and Executive Director of Mahindra Electric Automobile Ltd, explained: “The primary objective was to get to a level of granularity in forecasting which takes into consideration the highly dynamic market conditions. Dealers now put down to the last detail what product they want for the coming months, and we match that against retail momentum and past trends,” he said.
Rolled out formally in January 2025 after a pilot phase, the system allows Mahindra to align production with dealer requirements almost in real time, flag red signals earlier, and shift from spreadsheet-based retrospective planning to proactive, data-driven supply chain management.
Anil Sekhar, Head of Salesforce Excellence for Commercial Vehicles (CV) at Tata Motors, shed light on his division's strategic efforts to overcome this hurdle, detailing a granular approach designed to enhance inventory management and operational efficiency.
Sekhar recalled initiating an exploratory effort last year with the core aim of achieving a highly granular level of forecasting that could effectively integrate the auto market's dynamic conditions. "A lot of tech-driven data is being used to control inventory," Sekhar noted.
Under this new system at Tata Motors, dealerships are now tasked with submitting their monthly vehicle requirements with the "last level of granularity" at the beginning of the preceding month. For instance, January's requirements are determined in early December. To aid dealers in this process, the company provides them with data reflecting the previous month's trends, enabling them to formulate more precise projections. While acknowledging that this is an early part of the journey, Sekhar expressed optimism that the system will reveal a stronger correlation between dealer forecasts and real-time market momentum and product variances. This data-driven clarity is expected to allow Tata Motors to make informed decisions on product supply, moving away from a strategy of blindly pushing vehicle volumes to the dealers.
The stakes are high. The festive months typically account for 25–30% of annual passenger vehicle sales. This year, however, the combination of high inventories, GST transition, and uncertain consumer sentiment could make or break dealer profitability.
As Society of Indian Automobile Manufacturers (SIAM) President Shailesh Chandra noted at the conclave, the industry body has already taken up the compensation cess issue with the Ministry of Finance and is “very hopeful that a suitable resolution could be achieved to tide over this short-term interest that we have.”
Chandra urged the government for a suitable resolution to ensure viability of vehicle dealers."As SIAM, we are fully cognisant of the existence of compensation cess lying in the books of the dealers and SIAM has already represented this matter to the Ministry of Finance. We are very hopeful that a suitable resolution could be achieved to tide over this short-term interest that we have,” he said.