Auto dealers’ body sees demand revival with onset of monsoon, expected support measures

Amid a continuing fall in vehicle sales, a dealers' body has presented some hope for a demand revival, supported by the monsoon and expected stimulus measures from the government.

While the passenger vehicle (PV) segment has seen a further reduction in inventories, commercial vehicles (CV) and two-wheelers (2Ws) still battle higher inventories.

"Positive sentiment appears to be building up in view of the festive season, the revival of the monsoon, improving liquidity and expected action from the government,” says the Federation of Automobile Dealers’ Associations (FADA).

For July, overall sales remained in the negative zone (down six per cent ), with 2Ws reporting a five per cent decline, while passenger and commercial vehicles saw a 11 per cent and 14 per cent drop in volumes, respectively.

However, positive growth was seen on a month-on-month basis, with overall sales up five per cent, as June had the second lowest volume base in 2019 after February.

The month-on-month uptick in sales was attributed to the onset and the even spread of the monsoon in July and a slight liquidity improvement in the banking system towards July-end, according to the statement.

As far as inventories are concerned, the PV segment has seen a further cut, which comes closer to FADA’s proposed 21-day inventory. CV inventory remains high. A very slight reduction was seen in 2W inventory levels and they continue to remain at very high levels and a serious cause of concern for dealers.

According to the findings of a FADA survey, the average inventory for PVs ranged from 25–30 days (30-35 days in June this year), while that for 2Ws ranged from 60–65 days (60-65 days) and for CVs, it was 55–60 days (55-60 days)

"Consumer sentiment and overall demand continued to be quite weak across segments and most geographies. With June being a completely dry and rain-deficient month, consumer sentiment was at its lowest and with July rains covering up a lot of the deficit, some confidence in consumer demand led to pending purchase conclusion in July. Despite these factors, CV sales continued to be in the negative zone even month-on-month basis,” Ashish Harsharaj Kale, President, FADA, said.

The dealers' body describes the near-term outlook as “cautiously optimistic’’

While FADA expects some initiatives, specifically from the government, the need now is for the transmission of liquidity and rate cuts in lending at the retail level to spur growth, as banks and NBFCs continue to tread with caution for obvious reasons.” Kale said.

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