FADA Warns Auto Industry to Regulate Post-Festival Inventory, But When Will Demand Perk Up Again?

With the demand showing no sign of improvement, India automobile sector is going through one of its roughest phases in recent times. 

No stakeholder is willing to hazard a guess on how long this trough will last. The supply glut has already hurt not just the players in the automobile chain, but also industry-adjacent players in the economy. In all this sound and fury, the focus of the debate appears to be wrongly directed. 

In particular, attention being paid to the supply-side cannot be a solution right at this moment. Unfortunately, however, fiscal authorities are still unable to fathom the enormity of the disruption caused by the slipping demand. 

Even as things get worse by the day, the Federation of Automobile Dealers' Associations (FADA) on Friday advised its members to have inventory levels of three weeks only post the festive season for a smoother transition into BS-VI norms.

It has also appealed to OEMs (original equipment manufacturers) to help dealers in this effort. FADA is convinced that a watch on the industry’s inventory is a sine qua non at this point in time when the continuous slide in demand is hurting everybody across the automobile chain.

Also read: The Intriguing Case of a Massive Slowdown in the Auto Sector

 "OEMs must help our members avoid the perils associated with high inventory and regulate wholesale based on the retail trends.'' the federation said.

Sounding out a note of caution, FADA has appealed to its members and also OEMs to be judicious in their assessment of the retail conditions, and, accordingly, regulate their wholesale billing as the demand situation continues to be in a dynamic state. 

''If retail growth is projected beyond realistic situation, it can once again lead to a high inventory situation in this tricky phase of BS-VI transition which is just five months away," it said.

High inventory concerns, which began with previous festive season, still remained a problem area for the auto dealer fraternity, FADA has conceded. ''With retail expected to be high in October, it will provide an opportunity to our members to correct the same, before we transition to BS-VI,'' it said.

While commercial vehicles showed slight reduction in inventory, passenger vehicles, which were nearing FADA recommended range of 21 days, changed directions in anticipation of higher festival sales. 

Inventory management could only have a near-term impact for supply-side players. It will, however, have a long-term implication on the price front. It requires a holistic solution that can happen only if consumer is left with more money in her pocket. That calls for not just stability in the job market but also a friendly personal tax policy, which if certain signs are to be believed, may be on the way.

K.T. Jagannathan is Chennai-based financial journalist.

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