Demand in slow lane; automobile industry might end May with record inventory

After a demand deluge, the passenger automobile segment seems to be entering a slow lane with car companies apprehending a record stockpile of 4 lakh vehicles by the end of May. The inventories might be valued at an astounding Rs 44,000 crore on the face of demand tapering after a three-year almost unbroken sales run, The Economic Times has reported.

According to industry executives, if the month ends with 4 lakh cars, it would mark a historic high of inventory.

Some automobile companies have also cautioned investors in early May of piling inventory and lukewarm sales.

Automobile dispatches to dealers have begun to overtake demand. Vehicle registrations, which are likely to drop 5% in May compared to the same month in 2023, have been taken as the indicator of slowing demand.

The decline in May comes against the backdrop of the general elections, the marriage season getting over and severe heat waves in many significant regions such as Delhi NCR. Automakers could sign off May with despatches to dealers of 3.4-3.5 lakh vehicles which is 4-4.5% more from May a year ago.

Dealers said that some companies will go for planned stoppage of production will help ease the situation and bring down inventory levels.

“Pre-Covid stocks for the industry used to be in the range of 45 days. This has dropped to 2-3 weeks after the pandemic. Industry stocks are high. Forecast for monsoons is good. Interest rates are expected to come down later in the year, with inflation under control. Given the high base for the entire year, sales growth is likely to be in low single digits,” said Hardeep Singh Brar, national sales head at Kia India.

Brar thinks that after the new government takes charge, the sales would pick up again.

“It (inventory) even surpasses the months preceding the festive season when manufacturers bulk up stock,” an industry executive told the newspaper on conditions of anonymity.

According to Brar car registrations might decline 10% (on a sequential basis) in May. However, he pointed out that Kia might be an exception that might record a growth in sales powered by a new product lineup. “We have no plans to adjust our production or dispatches, nor are we considering any discounts. Our products are competitively priced,” Brar said.

The tepid demand will continue in June too, apprehends Vinkesh Gulati, chairman, research, at Federation of Automobile Dealers Associations, compelling auto manufacturers to trim production to prevent build-up of inventory. He said only the festive season beginning in October could witness a pick-up in demand.

The high inventory levels can also bring in its wake discounts and special schemes in June. In fact, executives said they might rise by 15-20% in June compared to May.