By Nandan Mandayam
BENGALURU (Reuters) -Pensed by leftover inventory and uncertain about consumer spending, India’s car dealers are worried about having to offer more discounts to boost demand during the upcoming festive season, a dealer association representative said on Thursday.
The double whammy of higher inventory costs and deeper discounts is a nightmare for car dealers as it directly impacts their profit margins.
“With our inventory already at record levels, buyers expect even higher discounts,” said Manish Raj Singhania, president of the Federation of Automobile Dealers Associations.
Dealership sales of cars fell 4.5% in August, the third decline so far in the current fiscal year that started in April.
India’s top three carmakers Maruti Suzuki, Hyundai (OTC:) and Tata engines (NYSE:) reported declines in dealer sales to customers of 8.5%, 12.9% and 2.7%, respectively. Earlier this week they also reported a decline in sales to dealers.
Market leader Maruti Suzuki reported a 7% increase in sales of its commercial vehicles, mainly SUVs, to dealers in August, while those of small cars such as Alto and Wagon-R fell 19%, company data showed.
The automakers had previously said they would moderate production to tackle the high inventory problem. They did not respond to Reuters requests for further comment.
The decline in car purchases by private buyers contrasts with a rebound in overall consumer spending, which reached a seven-quarter high in April-June.
Car sales are an important indicator of private consumption. According to government data, India’s auto industry constitutes 7% of GDP.
The number of unsold cars in the world’s third-largest car market rose to a 70-75-day high in August, valued at 778 billion rupees ($9.27 billion). The discounts are also unprecedentedly high.
While newly launched models of SUVs continue to sell steadily, dealers are struggling to sell hatchbacks, sedans and some older SUV models, Singhania said.
Many buyers have postponed their purchases until October, hoping for bigger discounts, FADA noted, adding that heat waves in the summer months and heavy rains afterwards hurt showroom visits and delayed purchasing decisions.
Singhania hopes inventory levels will drop in October, during the Navratri and Deepavali holidays, when Indians typically tend to make big purchases.
Analysts downplayed the chances of a great festive sales season.
“We don’t expect any major relief during the festive season,” said Amit Hiranandani, analyst at SMIFS.
($1 = 83.9640 Indian Rupees)
