The Federation of Automobile Dealers Associations (FADA) has released its vehicle retail data for August 2024, highlighting a modest year-on-year (YoY) growth of 2.88% across the Indian auto sector.
The performance varied across segments, with some experiencing growth and others facing declines.
The two-wheeler (2W) segment saw a YoY growth of 6.28%, despite a 7.29% month-on-month (MoM) decline. The decline was mainly due to rain disruptions and market saturation. The passenger vehicles (PV) segment experienced a decline of 4.53% YoY and 3.46% MoM, while the commercial vehicles (CV) segment reported a sharper drop, with an 8.5% MoM and 6.05% YoY decline, attributed to adverse weather conditions and weak industrial demand.
Impact of Weather and Inventory Concerns
Excessive rainfall in August played a significant role in disrupting auto retail performance. India saw 15.9% above-normal rainfall, with a substantial surplus in key regions, affecting vehicle sales.
The report also highlights inventory and cash flow concerns across the PV segment, with stock levels ranging between 70-75 days, equivalent to approximately 7.8 lakh vehicles valued at ₹77,800 crore. Dealers have been under pressure due to aggressive dispatches from original equipment manufacturers (OEMs), resulting in cash flow challenges and reduced profitability. FADA has urged banks and non-banking financial companies (NBFCs) to control funding to dealers with excessive inventory, and suggested that dealers and OEMs recalibrate supply strategies to avoid an inventory crisis.
Outlook for the Coming Months
Looking ahead, the auto retail market faces both positive and negative factors. On the positive side, the upcoming festive season, including events like Ganesh Chaturthi, Onam, and Navratri, is expected to boost consumer sentiment, particularly in urban areas. Additionally, improved rural sentiments due to favorable rainfall in some regions may lead to increased rural sales post-monsoon.
However, there are challenges as well. The Indian Meteorological Department (IMD) forecasts continued heavy rains in September, which could damage crops and weaken rural purchasing power. The Shraddh period, considered inauspicious for making purchases, is expected to slow PV sales in September. Dealers are also grappling with high inventory levels, aggressive discounting practices, and weak market sentiment, which continue to put pressure on profitability.
Overall Market Sentiment: Cautious Optimism
The outlook for the auto retail market remains cautiously optimistic. While the festive season offers growth opportunities, the sector faces several headwinds, particularly from weather-related uncertainties and high inventory levels. Strategic inventory management and targeted marketing efforts will be essential to making the most of the festive period while effectively navigating the ongoing challenges.