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India’s Auto Dealers Face Challenges Amid High Inventory and Discount Pressures

BENGALURU (Reuters) – Auto dealers in India are expressing significant concern as they grapple with excessive inventory levels and uncertainties surrounding consumer spending. A representative from the Federation of Automobile Dealers Associations (FADA) indicated on Thursday that these factors may compel dealerships to offer even steeper discounts in an effort to stimulate demand during the forthcoming festive season.

Dealers are currently facing a dual challenge: rising inventory costs combined with the need to provide deeper discounts. This situation poses a serious threat to their profit margins. “Our inventory levels are at unprecedented heights, leading customers to anticipate even greater discounts,” stated Manish Raj Singhania, FADA’s president.

Recent data highlights the dilemma, revealing that unsold vehicles in India, the world’s third-largest auto market, reached an alarming average of 70-75 days in August, with an estimated value of approximately 778 billion rupees ($9.27 billion). Simultaneously, the frequency and extent of discounts have also hit record levels.

Singhania remains hopeful that inventory will decrease in October, coinciding with the Navratri and Diwali festivals, times when the Indian populace traditionally makes significant purchases.

According to FADA, many consumers are postponing their buying decisions until October, anticipating more attractive discounts. Compounding this issue, the adverse weather conditions earlier in the year—including extreme summer heat and subsequent heavy rains—have negatively affected showroom visits, contributing to delays in purchasing decisions.

Sales of cars experienced a 4.5% decline in August, marking the third consecutive monthly drop since the beginning of the financial year in April. This decline contrasts with a broader increase in consumer spending, which recently reached a seven-quarter high between April and June.

The auto sector is a crucial barometer for private consumption in India, accounting for about 7% of the nation’s GDP, as per government statistics. While new models, especially sport utility vehicles, are witnessing steady sales, there remains a significant struggle in moving older inventory, including SUVs, according to Singhania.

“Manufacturers need to reassess their billing practices, ensuring that they do not overstock dealers beyond what is actually selling,” he emphasized.

($1 = 83.9640 Indian rupees)

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