The Hindu Business Line : Smart planning leads to drop in car inventory levels

WHILE car makers in the US are doling out huge incentives to clear out bloated inventories, some smart thinking and an auto boom have have ensured that dealers in India carry less than half the inventory than they did a year ago.

A year ago, inventory levels with dealers was as high as 45 days but they are now as less as 18 days to 20 days. An official of Maruti Udyog, India's largest car manufacturer, said the reduction in inventory levels has resulted in dealers being able to use their resources to give better service and hire more people to sell cars instead of buying more real estate, while car manufacturers have been able to reduce costs considerably. There are of course exceptions too, if one considers the long waiting period for certain models.

"We have now put in a mechanism, which tells us exactly how much a dealer requires over a certain period of time," a Maruti Udyog official told Business Line. Maruti produces nearly 1,500 vehicles a day and the new system allows the company a far better hold on the stocks.

According to one of the dealers, an unscientific approach among a few car makers resulted in a build-up of huge inventories. As dealers have to pay upfront to get the delivery of cars, higher inventories earlier lead to locking up of money, leading to higher interest outgo.

Also, there were occasions when certain manufacturers would force less popular models on dealers, if they asked for higher quota of fast-moving ones.

Such trade offs set a bad business practice, thereby damaging the relationship between the manufacturers and the dealers.

Such practices are history, says a Maruti official. Now, the feedback is received from the sales person to the dealer himself and based on that, the car manufacturer is able to assess the demand for each car. This ensures that the car manufacturer produces more of the fast-moving ones leading to cost savings.

A Hyundai official said that in their case, a dealer holds not more than four days of inventory, while Honda Siel too has ensured that their dealers are not burdened with huge inventories.

"We have of course been helped by a huge demand for our cars. Hence, inventory levels among our dealers are far less than the industry average," says a Honda official.

The President of the Federation of Automobile Dealers' Association (FADA), Mr Deshnidhi Kasliwal, said that inventory levels have come down to 15 days - 20 days from a high of 60 days a year ago, as car manufacturers have recognised the virtue of less inventory. "The April-July period this year has been extremely good for us. While car makers have taken advantage of this boom, they are also not going overboard by producing more cars than the market can take," says Mr Kasliwal.

But Mr Kasliwal warns that riding on the boom in the industry, car manufacturers have put certain practices in place. But will they hold good even during the slack season? For example, August hasn't exactly turned out to be a good month for the industry and the inventory levels have been creeping up. With the truckers' strike on, car manufacturers will have a tough time maintaining the delivery schedules, says Mr Kasliwal.