Auto retail data for August 2024, released by the Federation of Automobile Dealers Associations (FADA), indicates a modest year-on-year (YoY) growth of 2.88% in India’s automotive industry. However, the overall performance was uneven across various segments, with some experiencing growth while others faced notable declines.
In the two-wheeler (2W) segment, there was a YoY increase of 6.28%, despite seeing a 7.29% decline on a month-on-month (MoM) basis. This month-on-month drop was largely driven by market saturation and interruptions caused by heavy rains. On the other hand, the passenger vehicle (PV) segment faced a YoY decline of 4.53%, along with a 3.46% MoM drop, signaling challenges in sustaining sales momentum.
The commercial vehicle (CV) segment reported the steepest decline, with an 8.5% MoM fall and a 6.05% YoY drop, largely attributed to adverse weather conditions and sluggish industrial demand. The excessive rainfall experienced across several parts of India in August significantly impacted vehicle sales, with the country witnessing 15.9% above-normal rainfall.
Key auto markets were especially affected by the downpour, causing disruptions in retail activity across the sector. The FADA report further outlines concerns related to inventory and cash flow within the PV segment. Current stock levels are estimated to be between 70 and 75 days, which equates to approximately 7.8 lakh vehicles, valued at a substantial ₹77,800 crore.
Dealers have found themselves under growing financial strain, primarily due to aggressive vehicle dispatches from original equipment manufacturers (OEMs). This situation has led to significant cash flow challenges and eroded profitability margins for many dealerships.
In response, FADA has urged banks and non-banking financial companies (NBFCs) to exercise caution in providing funding to dealers who are overstocked. Additionally, it has called for both dealers and OEMs to reassess their supply strategies to prevent an inventory overload from spiraling into a larger crisis.
Looking ahead, the auto retail market in India faces a mixed set of opportunities and challenges. On the positive side, the upcoming festive season, featuring prominent celebrations such as Ganesh Chaturthi, Onam, and Navratri, is expected to improve consumer sentiment, particularly in urban areas. Furthermore, favorable rainfall in certain rural regions is likely to improve the mood in rural markets, potentially leading to a surge in sales once the monsoon season concludes.
However, the sector is not without its challenges. The Indian Meteorological Department (IMD) has forecasted heavy rains to persist into September, which could damage crops and diminish the purchasing power of rural consumers. Moreover, the Shraddh period, considered an inauspicious time for making large purchases, is expected to dampen PV sales in the coming weeks. Dealers continue to grapple with high inventory levels, aggressive discounting tactics, and weak overall market sentiment, all of which are pressuring profitability.
While the festive season offers growth opportunities, the auto retail market faces ongoing hurdles such as unpredictable weather, excess inventory, and soft consumer demand. To succeed, dealers and manufacturers will need to focus on effective inventory management and targeted marketing strategies to maximize the potential of the festive period while navigating the persistent challenges.
The Federation of Automobile Dealers Associations (FADA) is the apex national body representing the Indian automobile retail industry. It advocates for over 15,000 auto dealers, who collectively operate around 26,500 outlets. FADA plays a key role in policy discussions, addressing industry challenges, and promoting growth, while ensuring the interests of dealers and customers are represented.
