Indian Auto Industry Grapples with Sluggish Demand Despite Festive Season Boost
Nov 3
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As the festive season unfolded in India, many automakers anticipated a surge in vehicle sales, hoping to clear stockpiles and boost their numbers. However, the reality of the market has been less than ideal. The Indian auto industry, traditionally buoyed by the Diwali season, found itself facing an inventory glut and tepid demand. This situation has forced many auto majors to recalibrate their strategies, seeking new ways to manage what’s becoming an increasingly challenging landscape.
Festive Season Blues for Auto Manufacturers
In September, car sales in India took an unexpected dip, marking the third consecutive month of decline. Despite festive promotions and attractive discounts, auto sales across sedans, utility vehicles, and cars hovered between 3,55,000 and 3,60,000 units. Compared to 3,64,000 units sold during the same period last year, this represents a drop of around 1-2.5%. Passenger vehicle (PV) sales slipped by 1.8% in August and by 2.5% in July, showcasing a consistent downward trend.
The slowdown in demand took a toll on leading manufacturers like Maruti Suzuki, Hyundai Motor India, and Tata Motors, who all reported dips in sales last month. Maruti Suzuki, the country’s leading car manufacturer, noted that it “calibrated” its wholesale dispatches to dealerships to manage stock more effectively. The inventory at retail outlets was reduced to a one-month supply, down from a high of 36-37 days earlier in the month.
October Brings Some Relief
October, however, brought a glimmer of hope. With both Dussehra and Diwali celebrated during this period, companies reported a more positive outlook. Maruti Suzuki recorded a 3.6% increase in October sales, setting a new record for monthly sales. Mahindra also saw record-breaking numbers, with 96,648 units sold in October alone. Tata Motors experienced a slight decline, reporting 82,682 units sold across both domestic and international markets, a modest drop from the 82,954 units sold in the previous October.
The Rising Inventory Problem: A ₹79,000 Crore Concern
For dealers across the country, however, the inventory overhang remains a pressing issue. Auto dealers are currently managing an unprecedented inventory of 80-85 days' worth of stock—an estimated 7,90,000 vehicles valued at ₹79,000 crore. This problem stems partly from automakers’ aggressive dispatch strategies earlier in the year, despite the slowing sales.
Since May, dealerships have faced swelling inventories as sales in the mid-priced segment (₹10-25 lakh) began to soften. This segment had been a strong growth driver over the last two to three years, but demand has recently dwindled, even as competition in the compact SUV segment has led to increased discounting and promotions.
Mixed Signals on Demand Outlook
While dealers have faced rising inventories over the last five months, FADA (Federation of Automobile Dealers Associations) President CS Vigneshwar expressed cautious optimism. He believes that robust October sales, spurred by the festive season, should help liquidate much of this stock by month’s end. With hopes that demand will carry into November, dealerships are eagerly watching for signs of recovery.
Puneet Gupta, Director of Automotive at S&P Global Mobility, observed that demand has waned primarily in the middle segment, while premium segment cars are faring slightly better. The changing dynamics in consumer preferences and the influx of compact SUV launches have impacted some models, prompting manufacturers to rethink their approaches to product launches and promotions.
Navigating a Shifting Market
As the festive season draws to a close, Indian automakers are facing a critical turning point. The high inventory levels, fluctuating demand, and consumer behavior shifts underscore the need for strategic agility in the months ahead. For auto majors and dealers alike, balancing production and inventory with market demand will be key in navigating this period of uncertainty.
While Diwali may not have been the boom they hoped for, auto companies are banking on evolving strategies and perhaps a bit of post-festive momentum to drive recovery in the Indian car market.
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