The festive season of Diwali, which is usually a peak time for automobile sales in India, has turned out to be a disappointment for the dealers and manufacturers this year. According to the Federation of Automobile Dealers’ Associations (Fada), the inventory levels of passenger vehicles (PVs) have reached an all-time high of 63-66 days, while the demand has dipped by 1.4 per cent in October compared to the same month last year. Fada has urged the original equipment manufacturers (OEMs) to moderate the vehicle dispatches and introduce more attractive schemes to boost sales. Fada president Manish Raj Singhania said that if Diwali sales do not live up to expectations, the weight of unsold stock could lead to significant dealer distress, leading to potential industry-wide repercussions.
Chip shortage and rising prices affect the supply and affordability of vehicles
One of the major reasons behind the poor sales performance of the auto sector is the global shortage of semiconductor chips, which are essential components for the modern vehicles. The chip shortage has disrupted the production and supply of vehicles, especially the high-demand models such as SUVs. Maruti Suzuki India (MSIL), the country’s largest passenger carmaker, admitted that some models have inventory levels beyond optimal and some below optimal due to the chip crisis. MSIL senior executive officer Shashank Srivastava said that the company is modulating the production to scale up for larger demand models and scaling down for the others.
Another factor that has affected the sales of vehicles is the rising prices of fuel, raw materials, and transportation. The auto sector has witnessed multiple price hikes in the past year, which have made the vehicles less affordable for the customers. The rising inflation and interest rates have also dampened the consumer sentiment and reduced the purchasing power. Fada said that the two-wheeler segment, which accounts for the majority of the vehicle sales in India, has been the worst hit by the price hikes and low demand. The two-wheeler sales declined by 20.3 per cent in October compared to the same month last year.
Auto sector hopes for a recovery in the coming months
Despite the dismal sales figures in October, the auto sector is hopeful of a recovery in the coming months. Fada said that the festive season is not over yet and there are still some auspicious days left for the customers to buy vehicles. Fada also said that the easing of the Covid-19 restrictions and the improvement in the vaccination coverage have boosted the footfalls and inquiries at the dealerships. Fada expects the sales to pick up in November and December, as the customers may advance their purchases to avoid the possible price hikes in January.
Hyundai Motor India (HMIL), the second-largest player in the PV segment, said that its inventory is not more than three weeks and that it is likely to end the calendar year with a growth rate of 8-9 per cent over last year. HMIL chief operating officer Tarun Garg said that all Hyundai dealers are geared up for deliveries of Hyundai cars to customers during Diwali and Dhanteras.
The auto sector is also optimistic about the resolution of the chip shortage issue, which is expected to ease by the end of this year or early next year. The government has also announced some measures to support the auto sector, such as the production-linked incentive (PLI) scheme, the scrappage policy, and the promotion of electric vehicles. The auto sector hopes that these initiatives will help in reviving the demand and growth of the industry in the long term.