FADA Plans To Take Up The Matter Of High Inventory With SIAM

A lobby of India's biggest auto dealers plan to raise the issue of high inventory with manufacturers, highlighting the enormity of the unsold stock.

“We do not want a repeat of 2018-19, when 280 dealerships went out of business,” Manish Raj Singhania, president of the Federation of Automobile Dealers Associations, or FADA, said on the sidelines of an event in Mumbai on Friday.

“We are cautious about the inventory levels because anything above 30 days starts hitting the dealerships. We follow a cycle where the dealer takes funds from banks, which are paid back with interest in 60 days,” he said. “But the OEMs are increasing this period from 60 to 90 days. While the dealers are getting one month extra, this allows the OEMs to dump more stocks saying, ‘You have got three months to rotate that inventory at the dealership, which was initially two months.' That is a cause of worry..."

By the end of May, India's car dealers were saddled with unsold stock of  up to 5 lakh units—or 35-40 days of inventory—as demand cooled off after three years of blockbuster sales. In fact, the inventory is already at levels seen in the months preceding the festive season, when carmakers stock dealerships to cater to the incoming demand.

“Last year, the inventory levels had gone up to 65 days… We collaborated with SIAM and subsequently, were able to bring it down and the market also supported very well,” said Singhania. ”This time, we are already at the peak. If it increases further in June, we will approach SIAM.”

“We do not want to go back to inventory levels that were touched in 2018-2019. We need to discuss this openly with financiers,” Singhania said.

Most of the unsold stock is compact cars, which have fallen out of favour with India's carbuyers. SUVs are preferred and account for nearly 60% of incremental sales. 

“The entry-level segment has not been doing well for the last four years,” Singhania said. “We have been selling automobiles like crazy, especially for the upper middle and upper class. But why in the entry-level segment India should be left behind in this story?”

(With inputs from PTI)