![](/images/clear-button-white.png)
Auto Sector To See Festive Season Respite, But Record Sales Of 2023 Unlikely
With the festive season set to begin soon, car makers are offering discounts to get rid of piling up inventory. But how much will it help?
![Auto Sector To See Festive Season Respite, But Record Sales Of 2023 Unlikely Auto Sector To See Festive Season Respite, But Record Sales Of 2023 Unlikely](https://www.thecore.in/h-upload/2024/07/21/800219-car-dealership1200x630.webp)
Last month, retail car sales in India fell to their lowest since September 2022. At 6.5% year-on-year, the drop was sharp but followed a 1% decline in the previous month. This, after a record-breaking year of sales when the industry crossed the 4 million mark for the first time ever, in financial year 2023-24.
While heatwaves in northern India may be partly to blame for the laggard demand, there’s a longer story behind the slowdown, including easing of post-Covid pent up demand and inventory piling up. Plus, as dealers in Mumbai pointed out, June and July are usually slower months. However, in a bid to shore up sales, both dealerships and car makers have introduced steep discounts and promotional offers.
Despite this, sales are not expected to bounce back to last year’s levels immediately, and all eyes are on the upcoming festive season — starting early in September this year with Ganesh Chaturthi. Typically, the festive season, which lasts from the start of Ganesh Chaturthi/Onam to the end of Diwali, is when auto ...
Last month, retail car sales in India fell to their lowest since September 2022. At 6.5% year-on-year, the drop was sharp but followed a 1% decline in the previous month. This, after a record-breaking year of sales when the industry crossed the 4 million mark for the first time ever, in financial year 2023-24.
While heatwaves in northern India may be partly to blame for the laggard demand, there’s a longer story behind the slowdown, including easing of post-Covid pent up demand and inventory piling up. Plus, as dealers in Mumbai pointed out, June and July are usually slower months. However, in a bid to shore up sales, both dealerships and car makers have introduced steep discounts and promotional offers.
Despite this, sales are not expected to bounce back to last year’s levels immediately, and all eyes are on the upcoming festive season — starting early in September this year with Ganesh Chaturthi. Typically, the festive season, which lasts from the start of Ganesh Chaturthi/Onam to the end of Diwali, is when auto sales boom. Last year, car sales hit record highs during the festive season, registering a turnover of Rs 1.3 lakh crore.
Will the festive season this year bring respite and a boom back to passenger vehicle (PV) sales? Respite, yes. However, analysts The Core spoke to said that sales might continue to be moderate, and pick up marginally, compared to last year.
Why Have Cars Sales Slowed Down?
This year, car sales particularly slowed down in May and June as several parts of north India reeled under heatwaves, deterring people from visiting showrooms. There was a 15% drop in footfall across dealerships, according to the federation of automobile dealers association (FADA). This is more significant than one might assume. When customers can’t walk into stores, they’re not going to buy a car. In an earlier conversation with The Core, FADA president Manish Raj Singhania had said that the customer conversation rate for store walk-ins was 70-80%.
But that’s not all. There’s also a delay in purchase decisions, a Hyundai showroom manager in Mumbai told The Core. A primary reason for this may be that customers can shop around for various discounts offered by various dealerships. There’s also a much shorter wait time now thanks to an inventory pile-up, pointed out Hemal Thakkar, senior practice leader and director at credit ratings agency CRISIL. Potential buyers are aware of this and know they can delay their decision to buy without having to worry about long wait times. (Delivery waiting periods stretched up to six months for some models.)
To really understand what is happening this year, we must go back two years to financial year 2022-23, when the supply chain disruptions and semiconductor shortage that the auto industry had been facing during the pandemic was easing. There was also a post-Covid pent up demand and easing of extremely long wait periods. All of this propelled car sales to hit a record 27% growth.
The following year saw a 9% growth, which was unprecedented. “The momentum was good, but on a very high base we would have ideally grown at 4-5%,” said Puneet Gupta, director, S&P Global Mobility. However, due to a stronger push by car makers, it led to higher growth but also more inventory build-up.
Inventory Backlog A Concern
Concerns over piling inventory have been building since last year. In June, wholesale car sales grew by 3%, according to data by the Society of Indian Automobile Manufacturers. This indicates that inventory is continuing to build up. The first six months of this calendar year has seen higher wholesale numbers than retail, pointed out Thakkar.
While the recommended level of inventory buildup is three weeks, it is over three times higher currently at 62-67 days, according to FADA. This has caused anxiety among dealers, who are pushing out discounts and offers to liquidate this inventory. Dealers were staring at an inventory stockpile of 4 lakh vehicles, worth Rs 44,000 crore, by the end of May, which would have to be cleared out.
Discounts Peaking Now
Discounts may continue to peak in July, said Thakkar, before sales pick up next month onwards. With both dealers and manufacturers pushing discounts, customers will rush to close deals by the end of this month.
But discounting will continue in the festive season, Gupta said, as dealers try to clear leftover inventory and take advantage of higher demand.
Small Cars Bear The Brunt
Demand for utility vehicles (UV) and premium cars has already been taking over demand for small and entry-level cars over the last two years. With high demand, SUVs accounted for over 50% of the country’s car market share for the first time in FY24. In terms of inventory buildup as well, small cars are struggling the most. This also translates into higher discounts and a higher number of discounts for smaller cars. Plus, the segment has been heavily impacted by slow income growth as well as inflation.
UV sales will likely continue to lead the pack this fiscal year. According to Gupta, the overall growth forecast for the year is a moderate 4-5%. Thakkar also forecast a similar 5% growth for the calendar year and lower for the fiscal year.
The second quarter, which is the festive season, may see the highest growth this year, according to Gupta. However, don’t hold your breath for too many jaw dropping numbers this year.
![undefined undefined](/images/authorplaceholder.jpg)
With the festive season set to begin soon, car makers are offering discounts to get rid of piling up inventory. But how much will it help?