Following a similar path, the country’s largest automaker, Maruti Suzuki also slashed prices of select variants of small cars Alto K10 and S-Presso by up to Rs 6,500 ahead of the festive season.
But, what is the need for it?
Cyclical shift
After nearly three years of strong growth, a natural demand moderation was expected. Initially, post-pandemic demand was high due to a chip shortage that restricted production. However, as the chip shortage has been resolved and pent-up demand has eased, an oversupply situation has developed.
This issue, initially underestimated by carmakers and dealers, has led to a backlog of unsold cars at dealerships. Consequently, this inventory surplus is now expected to affect car manufacturers’ stockyards.
Inventory pile-up
Auto sales are a key indicator of private consumption. India’s auto industry forms 7% of its GDP, as per government data.
The price cut comes amid a significant inventory buildup at dealerships. Sales of cars by dealers fell by 4.5% in August, marking the third decline in the current financial year, which began in April.
India’s top three carmakers—Maruti Suzuki, Hyundai, and Tata Motors—saw dealer sales to customers drop by 8.5%, 12.9%, and 2.7%, respectively.
In August, unsold car inventory in the world’s third-largest auto market surged to a record 70-75 days, valued at 778 billion rupees ($9.27 billion).
New upgrades & weak demand
Another factor contributing to the inventory buildup is the recent influx of new car models and feature upgrades, which has reduced demand for older and earlier versions of these models.
Additionally, the affordability issue is affecting the entry-level segment, where small hatchbacks are struggling. The shift from two-wheelers to entry-level cars has slowed, reflecting broader consumption problems. Consequently, most carmakers, except Maruti Suzuki, have reduced or exited the entry-level hatchback market.
Climate factors
Another significant factor is climate change. A Maruti Suzuki sales executive noted that high summer temperatures and the recent national elections deterred buyers from visiting showrooms.
Additionally, heavy rains and flooding in southern and eastern regions, such as Kerala and Telangana, further affected demand. Hyundai Motor’s executive pointed out that frequent heavy rains in Kerala, a major market for diesel cars, have severely impacted diesel vehicle sales across various manufacturers.
Some models losing sheen
EV sales in India have entered a slow lane after a fast-paced growth. E-car registrations dropped 2.92% to 7541 units in July, amid slow adoption among buyers, among other factors. Tata Motors control almost 68% of the segment.
Shailesh Chandra, managing director, Tata Motors Passenger Vehicle and Passenger Electric Mobility, attributed the drop in Tata EV sales to the discontinuation of the FAME II (Faster Adoption and Manufacturing of Electric Vehicles) scheme from April 1. Fleet sales account for 20% of the company’s EV sales. The government subsidy has a crucial role to play to ensure they (e-cars in the fleet segment) cross the hump. The handholding in this phase will ensure they get greater confidence, he added.
Discount dilemma
Prolonged high discounts and price cuts by carmakers and dealerships often lead consumers to delay their purchases, hoping for even lower prices or better discounts in the future. This can further dampen consumer demand.
As a result, dealerships are experiencing record-high inventory levels, with the Federation of Automobile Dealers Associations (FADA) reporting that inventory days increased from 67 in June to 75 in August.
Last month, inventories worth an estimated Rs 77,000 crore or higher were sitting idle at auto dealerships, with a number of these dealers reporting problems in moving vehicles from their yards to customers’ hands, according to FADA.
Auto dealers face costs from inventory pile-ups, as their limited storage space is clogged with unsold cars, leaving no room for newer, faster-selling models. This problem will eventually shift from dealerships to carmakers.
To address the excess stock, carmakers are now offering significant discounts on previously high-demand models. SUVs like Mahindra’s XUV700 and ScorpioN, Tata’s Harrier and Safari, Maruti Suzuki’s Grand Vitara, and popular MPVs like the Suzuki Ertiga are now widely available, often with substantial discounts, depending on dealer inventory.
