The Federation of Automobile Dealers Associations Releases July’24 Vehicle Retail Data

Overall Growth: The Indian Auto Retail sector experienced a double digit growth of 13.84% YoY.

Segment Performance:

Two-Wheelers (2W): Positive YoY growth of 17.17%.

Three-Wheelers (3W): Increased by 12.88% YoY.

Passenger Vehicles (PV): Double digit growth of 10.18% YoY.

Tractors (Trac): Significant YoY decline of 11.95%.

Commercial Vehicles (CV): Increased by 5.93% YoY.

Challenges Identified:

Monsoon Impact: Above-normal cumulative rainfall with uneven geographical distribution, leading to varying impacts across regions.

Consumer Sentiment: Low in some regions due to heavy rains and economic uncertainties.

High Inventory Levels: PV segment inventory surged to historic highs of 67-72 days amounting to Rs 73,000 Crores worth of stock, thus posing risks for dealer sustainability.

Financial Strain: Dealers continue to face financial pressure due to high inventory and interest costs.

Market Competition: Increased competition and heavy discounting in the PV segment.

Near-Term Outlook

Monsoon Forecast: IMD predicts 'above normal' rainfall in the second half of the monsoon season due to potential La Nina conditions.

Agricultural Impact: Brief monsoon break in August not expected to impact overall rainfall, crucial for Kharif sowing and standing crops.

Festive Season: Expected to boost auto retail sales across segments.

Product Launches and Promotions: Availability of new models and ongoing sales promotions to support future growth.

Dealer Sentiment: Cautiously optimistic outlook with anticipated new product launches, despite concerns over low customer inquiries and potential impacts of heavy rains.

Cautious optimism in near term.

The Federation of Automobile Dealers Associations (FADA) released Vehicle Retail Data for July'24.

July24 Retails

FADA Vice President Mr. C S Vigneshwar provided insights on July 2024's auto retail performance, stating, “Following a deficient June, monsoons in India have intensified, resulting in above-normal cumulative rainfall for July. However, the geographical distribution was uneven, with Southern and Central India receiving excess rain, while 10 meteorological divisions experienced a double-digit deficit. Kharif sowing has increased by 2.3% since last year, but these figures are somewhat misleading due to poor sowing activity in the previous year caused by El Nino disruptions. Compared to July 2023, the sown area has actually decreased by 2.4%, according to experts.

Despite these challenges, India’s automobile retail sector saw a YoY growth of 13.84%, with almost all categories witnessing an increase. Two-wheelers (2W) grew by 17%, three-wheelers (3W) by 13%, passenger vehicles (PV) by 10% and commercial vehicles (CV) by 6%. Tractors, however, continued to underperform, falling by 12% YoY.

The 2W segment experienced notable growth due to a thriving rural economy, positive monsoon effects, and government support programs enhancing rural incomes. The introduction of new products and better stock availability also contributed significantly, despite market slowdowns in certain regions, excessive rains, and increased competition. The segment also saw an increase in EV sales due to discounts and EMPS scheme deadline.

PV sales saw a robust 14% growth, driven by new model launches and attractive pricing strategies. Dealers reported benefits from good product availability, attractive schemes, and a wider range of products. Nonetheless, heavy rains, low consumer sentiment, and intense competition posed challenges. Some dealers managed to sustain sales through strong promotions and incremental discounts.

However, this growth is accompanied by a significant concern. Inventory levels have surged to a historic high of 67-72 days, equating to Rs 73,000 crores worth of stock. This poses a substantial risk for dealer sustainability, necessitating extreme caution. FADA urges PV OEMs to be vigilant about potential dealer failures due to these high inventory levels. It is also crucial for the Reserve Bank of India to mandate financial institutions to implement stringent checks before releasing inventory funding, preferably requiring dealer consent or collaterals to prevent the escalation of NPAs.

CV retail sales showed a 6% YoY growth, with dealers reporting mixed sentiments. Positive factors included growth in the construction and mining sectors, while challenges such as continuous rainfall, negative rural market sentiment, poor finance availability, and high vehicle prices were also noted. Some dealers achieved growth through small bulk deals and leveraging increased market reach and product acceptability.”

Near-Term Outlook

The near term outlook across the auto retail segments shows a blend of optimism and caution. 2W sales are expected to be buoyed by factors such as a growing rural economy, positive monsoon impacts and the introduction of new products. The festive season beginning after the Aadi festival and favourable agricultural conditions are also likely to contribute to increased sales. However, heavy rainfall, ongoing agricultural activities and inconsistent monsoon patterns may dampen demand in certain areas.

PV could see mixed results. While the festive season, attractive schemes and good monsoon are expected to boost sales, concerns over low consumer sentiment, heavy rainfall and a lack of new product launches persist. High inventory levels pose a significant risk and it is crucial for PV OEMs to avoid further increases in stock to prevent financial strain on dealers. CV face a modest outlook, with positive factors including improved market reach and the festive season, tempered by challenges such as bad freight rates and ongoing rainfall.

The Indian Meteorological Department (IMD) predicts that rainfall in the second half of the monsoon season (August-September) is likely to be 'above normal' due to the potential formation of La Nina conditions. While August may see a brief break in the monsoon, overall rainfall for the two months is expected to remain high, which is crucial for Kharif sowing and standing crops. However, excessive rains could lead to city flooding, floods in low-lying areas and landslides in hilly regions, potentially impacting auto retail sales.

The auto retail market is cautiously optimistic for the near term, driven by positive monsoon effects, the festive season, and some product launches. Nonetheless, challenges such as heavy rainfall, high inventory levels in the PV segment, and economic uncertainties warrant caution. Effective inventory management and stringent financial checks are essential to sustain growth and mitigate financial risks, ensuring the stability and health of the auto retail sector.       

Key Findings from our Online Members Survey

Liquidity

Neutral               50.22%

Good                 25.97%

Bad                      23.81%

Sentiment

Neutral              45.89%

Good                   29.87%

Bad                      24.24%

Expectation from August’24

Growth               51.08%

Bad                      38.10%

De-growth         10.82%