Why Festive Season Has Left Two-Wheeler Dealers Worried

As India's two-wheeler companies prepare to ramp-up sales for the upcoming festival season, some dealers fear a repeat of last year when lower-than-expected sales led to high inventories, causing financial stress.

“Going by the indicators that are visible currently, we don't have expectations of any significant sales growth in the festival season as consumer sentiments are seen dim,” said an Uttar Pradesh-based dealer of Hero MotoCorp Ltd. on condition of anonymity out of business concerns.

“In my 15 years of experience," he said, "there hasn't been a time when companies are not hopeful of higher sales." The dealer has little hope even from the marriage season that starts after the festival. "I will have to manage like I did last year," he said.

Hero MotoCorp didn't respond to queries emailed to the company.

Festive sales usually begin from the first week of Navratri and last till two weeks after Dhanteras as there is a lag of 10-12 days between delivery and registration of vehicles. In states like Maharashtra, it starts even earlier with Ganesh Chaturthi. For makers of scooters and motorcycles, it's the period of driving sales. More so when demand is yet to recover from Covid slump and rising prices.

In the festival period last year, two-wheeler sales contracted 22% over the pre-pandemic period of 2019 because of a combination of high fuel prices, lower demand, and rural distress, according to data from Federation of Automobile Dealers Associations. Consequently, the average inventory for two-wheelers shot up to 40-45 days by the end of the season.

That prompted the FADA, which represents over 15,000 automobile dealers in the country, to urge two-wheeler companies to reduce the inventory.

According to dealers, festival sales this time are expected to be 5-10% higher than the low base of last year. However, that might not be enough to sell all the vehicles that companies may push as they ramp-up dispatches for a comparatively normal festival season after two years.

Over the past two years, two-wheeler sales have remained subdued due to the rise in prices amid the transition to the Bharat Stage VI norms and diminished purchasing power in the wake of Covid-19. The industry's pain was aggravated by rising commodity and fuel costs following Russia's invasion of Ukraine in February.

Yet, dealers will have few alternatives than to accommodate the dispatches from companies even at the risk of stressing their financials.

If the company has the stock available, then they will not ask how much the dealers want, a general manager at a Jaipur-based dealership of Bajaj Auto said. Dealers have no option but to take the risk as it makes sense to do so in a potentially high sales period, he said.

Dealers often rely on short-term working capital to get vehicles from the companies. If the stock is not cleared in the expected period, that increases interest costs, hurting financials.

“Average two-wheeler inventory is around 25 days right now, which is expected to rise to 30-35 days during festivals,” Vinkesh Gulati, president of FADA, told BQ Prime. The number, however, can change sharply when it comes to particular companies.

The risk of huge inventory is particularly high for Hero MotoCorp's dealers this time, as Bajaj Auto Ltd. is working on increasing dispatches after grappling with chip shortage, said another dealer familiar with the matter on condition of anonymity. TVS Motor Co. also has a healthy level of inventory with dealers, he said.

Bajaj Auto and TVS Motor didn't respond to queries sent through email.

According to dealers that BQ Prime spoke with, a lot will also depend on how the monsoon progresses as it will have a direct impact on disposable incomes in rural markets.

That, they said, would decide how sweet this Diwali turns.