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The Indian auto industry is facing a challenging period as retail sales continue to decline, according to data released by the Federation of Automobile Dealers Association (FADA). Overall automobile retail sales in September experienced a year-on-year (YoY) decline of 9.26%, highlighting a persistent trend of subdued consumer demand and economic uncertainty.
The decline was most pronounced in the passenger vehicle (PV) category, which saw a staggering 18.81% YoY slump, marking the fourth consecutive month of negative growth. This alarming trend is attributed to a combination of factors including low consumer sentiment, a sluggish economy, and the impact of seasonal events like the Shraddh period and Pitrapaksha. Heavy rainfall across the country has also contributed to the subdued market environment, further impacting walk-ins and sales activity.
While three-wheelers and tractors registered modest YoY growth, the two-wheeler segment also experienced a decline of 8.51%, indicating a broader downturn in the auto sector. The commercial vehicle (CV) category showed a mixed performance with a 1.46% MoM increase but a YoY decline of 10.45%. This reflects regional variations in demand, driven by infrastructure projects, but overall, the market remains weak due to low government spending and seasonal challenges.
The FADA highlighted a concerning trend of high inventory levels in the PV segment, with dealers facing an all-time high of 80-85 days, equivalent to 7.9 lakh vehicles worth ₹79,000 crore. This accumulation of unsold stock is putting immense financial pressure on dealers, leading to increased cash flow challenges.
In response to this critical situation, the FADA has urged the Reserve Bank of India (RBI) to implement stricter guidelines on channel funding policies to mitigate the financial risk faced by dealers. The Federation believes that stricter policies based on dealer consent and actual collateral would help prevent further financial pressure arising from unsold stock. The FADA has also appealed to original equipment manufacturers (OEMs) to take immediate corrective measures to support market recovery, emphasizing that the upcoming festive season presents a crucial opportunity to stimulate demand and avoid a major financial setback.
Despite the challenges, there are some signs of optimism. The upcoming festive season, with both Navratri and Diwali falling in the same month, is expected to boost sales. Improved crop yields are also anticipated to contribute to positive market sentiment. However, the high inventory levels in the PV segment pose a significant risk if October sales fail to meet expectations, further exacerbating the financial pressure on dealers and OEMs.
With heavy discounts and offers already in place across segments to incentivize purchases, the FADA has expressed concerns about potential impact on dealer profitability if sales do not pick up during the festive season. The auto industry is now closely watching the performance of the upcoming festive period, hoping for a turnaround in sales and a return to growth.
Source: Auto retail sales slump by more than 9% in Sept., PV sales slip 19%: FADA