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Hit by slowdown, auto-makers gear for retail push, rural pit-stop

Nandana James Mumbai | Updated on July 21, 2019 Published on July 21, 2019

Focus turns to pruning inventory level with dealers, targeted marketing

Bringing down the inventory with dealers and a focus on retail sales (to end-customers rather than dealers) seem to be the measures passenger vehicle makers are taking at a time when the automobile industry is undergoing one of its worst slowdowns in recent years. Companies are also pinning hopes on the festival season for better volumes.

Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India, said the No 1 priority is pushing retail sales rather than focussing on wholesale sales, after taking due notice of the rising inventory levels with dealers.

“As the stock increases and as payment to banks have to be made on a due date, how quickly you rotate your funds or how quick your retail sales are matter. In the absence of retail (sales), the stock goes up, and therefore, your exposure to the bank also goes up, because you are carrying a much larger stock,” he said.

In Maruti’s case, the stock with dealers had gone up to around 40 days in the last quarter, and after “better calibration”, it has come down to 33-34 days.

At Honda Cars India, Rajesh Goel, Senior Vice-President and Director, is taking measures across divisions to keep costs under control. “In times like these, it may not be a great idea to reduce the marketing expenses, but efficiencies need to be brought in. Our focus is to avoid accumulation of inventory at dealerships. We are focussing on strong market offers and targeted marketing to bring the customer into our showrooms,” he said.

The slowdown beleaguering the auto industry has been a prolonged one, with passenger car sales plummeting every month during the past year, with October being the sole exception. In June, four out of the six main passenger vehicle makers registered a double-digit fall in sales. Insufficient liquidity, higher rejection rate in financing and overall [negative] consumer sentiment have cast a shadow on spending.

Like others, Tata Motors is also focussing on pushing its retail sales. SN Barman, Vice-President, Sales, Marketing and Customer Support, Tata Motors, said the company has taken a “conscious call” to focus on pushing retail sales as opposed to sales to wholesalers. The company is also gradually trying to bring down the dealer stock to its desired level of 21 days. It is also betting big on the rural market and planning to increase its reach to drive growth.

Production cuts

Despite the fall in demand, OEMs continued to push sales in the second half of fiscal 2019, leading to higher dealer inventory by the end of the fiscal 2019. Said Hetal Gandhi-Director, Crisil Research: “With weak retail sentiments, OEMs have undertaken production cuts with the aim of lowering inventories.”

Players including Maruti Suzuki and Mahindra & Mahindra have scaled down vehicle production recently.

“The production volume as compared to last year is surely lower but it is being controlled well by our production planning process every month. So far, we have not resorted to any unplanned production cuts,” said Honda's Goel.

Pre-used car business

One of the positive fallouts is that auto makers are seeing an uptick in the pre-used car business. Maruti Suzuki’s True Value, for example, has registered an increase of over 10 per cent in volumes in the first quarter of this year, while the new-cars retail business fell during the same time.

The industry players are hopeful of a recovery during the festival season. “Recovery in rural income as well as pick-up in economic growth remain key monitorable factors for any meaningful improvement in customer sentiments,” affirmed Ashish Modani, Vice-President and Co-Head, Corporate Ratings, ICRA.

But manufacturers with large stocks will have to be very careful. “This is not a normal year. This is a year where high stocks are those that will become useless from April 1. The more BS-IV stock the manufacturers carry, the more stress there will be, and this will increase as we go towards the date of April 1,” cautioned Srivastava.

Published on July 21, 2019
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