The Federation Of Automobile Dealers Association (FADA) is considering approaching financiers to request a reduction in overfunding for automobile dealers. Dealers claim to have passenger vehicle inventories valued at Rs.70,000 crore.
FADA reports that the passenger vehicle inventory currently ranges between 67 and 72 days, marking the highest level recorded in a year. Dealers argue that they struggle to generate profits when the passenger vehicle inventories exceed 30 days.
"We are planning to engage with financiers to discourage overfunding of dealers. This move is aimed at benefiting automobile dealers by reducing high costs and implementing measures to lower inventory levels. Dealers are facing challenges in rotating stocks within 60 days. We have also sought intervention from SIAM," stated a senior official requesting anonymity.
The association has also granted approval for vehicle manufacturers to ramp up production of cars in demand.
"The optimal inventory level at the dealer's end is around three lakh vehicles. We are currently experiencing the industry's lowest point, with Original Equipment Manufacturers (OEMs) adding to our burden. Manufacturers need to synchronize their wholesale with retail. Each OEM has three popular models with significant consumer demand and extended waiting periods. However, the issue of waiting periods has not been adequately addressed by manufacturers. OEMs should promptly adjust and realign their production to meet customer demand," previously mentioned Manish Raj Singhania, President of FADA to businessline.
Analysts have raised concerns about a slowdown in the passenger vehicle segment this year.
"We are apprehensive about the PV industry slowdown, the underperformance in small car segments, and the excessive reliance on the SUV segment," highlighted LKP Securities.
FADA had previously written to financiers in November 2023, urging them to avoid overfunding automobile dealers with passenger vehicle inventories exceeding 66 days.
Festive Season Optimism
While the festive season is anticipated to alleviate inventory levels and OEMs have initiated adjustments in vehicle production, the impact on the passenger vehicle industry is expected to persist.
"We anticipate a marginal growth in offtake by a low single digit for FY25, considering the retail pressure and current inventory situation," noted Hemal Thakkar, Senior Practice Leader & Director of consulting at CRISIL Market Intelligence and Analytics.
