Retail car sales decline for 11th straight month but inventory level is significantly down

Retail sale of passenger vehicles declined for the 11th straight month in July 2019 at 243,183 units, but it was significantly more than the despatch figures released by industry body Society of Indian Automobile Manufacturers at 200,790 units.

Not surprisingly, the rate of decline is also starkly different. While wholesale figures that represent the number of units delivered by companies to dealers showed a staggering 31 per cent decline in July 2019 over July 2018, retail figures that represent actual registration of vehicles in the country was down by only 11 per cent. It also showed green shoots of recovery in demand as on a month-on-month basis, unlike wholesale figures, retail sales were actually up 7 per cent.

The difference between the two figures is generally accounted for by the inventory that is being carried by dealers across the country. The slump in despatches and the corresponding relative higher retail sales indicate a comprehensive inventory reduction being carried out in the industry. From a high of more than 50 days six months ago, inventory with dealers for passenger vehicles has come down to a more manageable 25-30 days. A depleted inventory and the upcoming festive season means an uptick in wholesale numbers could be in the offing in the next few months.

“Consumer sentiment and overall demand continued to be quite weak across all segments and most geographies. The July sales continue to be in the negative zone  year-on-year. Although some respite was seen in month-on-month growth numbers. It was mainly due to revival of the monsoon bringing some positivity and also June having the second lowest volume base this calendar year after February,” said Ashish Harsharaj Kale, president, Federation of Automotive Dealers Association. “With June being a completely dry and rain deficient month, consumer sentiment was at its lowest and with July rains covering up a lot of the deficit, some confidence in consumer demand led to pending purchase conclusion in July.”

The positivity, however, is not secular as retail sales trends in two wheelers and commercial vehicles remain negative. The inventory levels in these two segments is also high.  Retail sale of two wheelers declined 5 per cent in July 2019 at 13,32,384 units while in commercial vehicles the decline was 14 per cent at 23,118 units. These were also much lower than despatch numbers for the month at 15,11,692 units and 56,866 units, respectively indicating that inventory is still being built at dealerships for these vehicles even as overall demand remains subdued.

According to FADA, commercial vehicle inventory remained high at 55-60 days and two-wheeler inventory at 60-65 days. Unlike the slight uptick in sales seen in July for passenger vehicles, the continued downturn in sales in these two segments gave little room for dealers to reduce Inventory.

FADA said the situation overall remains challenging as consumer sentiment and demand continues to be weak with rampant purchase postponement within consumers. The transmission of surplus liquidity and interest rate cuts are yet to happen in retail lending. Further confusion in consumer’s minds with regard to electric vehicles and BS VI emission rollout has also added to postponement while the severe flood situation in some parts of the country may also impact sales in the immediate future. It was, however, hopeful that revival of monsoon, the recent RBI rate cut and an anticipated stimulus package for the industry may spur a turnaround.

[“source=businesstoday”]