From market leader Maruti Suzuki to Hyundai, Tata Motors, Skoda and Honda – they are all offering cash discounts, exchange bonus and additional benefits even on popular models, trade insiders told ET.
“The discount levels now are among the highest I have ever seen in the market,” an industry executive said on condition of anonymity.
Several senior industry executives and dealers ET spoke with said these are the highest discounts seen in the local market since FY20, when the industry rolled out a slew of promotional offers to liquidate inventory ahead of the transition to Bharat Stage VI emission standards.
While the industry began the fiscal with normal stocks of about 300,000 vehicles in the channel, enough to meet demand for 30 days, sluggish sales soon added another 100,000 units. This prompted car makers and dealers to offer promotional schemes, crescendoing over the last four months, with benefits this month coming at a par with those in FY20.
Passenger vehicle (PV) sales in the country hit a record high of 4.23 million last fiscal, partly due to pent-up demand after a global semiconductor crisis curtailed production for several months. However, sales started slowing down in the new fiscal year after three years of robust growth.
“Supplies improved with the easing of the semiconductor crisis July 2023 onwards. Wholesale volumes in the second quarter of the last fiscal year (10.78 lakh units) was the second highest ever. These deliveries helped meet pent-up demand of the previous few months,” the executive quoted above said. “Now that (pent-up) demand is over, an increase in wholesales resulted in stocks piling up on a very high base. Car makers and dealers are lining up offers to draw in buyers.”
Another senior industry executive said the discounts have increased by almost 100% compared to August 2023. “Companies had multiple SUVs lined up for launch ahead of the festive season last year — Hyundai Exter, Tata Nexon EV facelift and Honda Elevate — which received good response. There are fewer launches this year. With pent-up demand gone, all these models are now available with huge discounts,” the person said.
By industry estimates, stocks of cars, sedans and utility vehicles in the channel currently range from 400,000-405,000 units – enough to meet demand for 40 days.
Dealers, though, peg the number much higher at 67-72 days.
“Retail sales are happening. But carmakers have been ramping up production, which has resulted in unprecedented stock levels in the channel,” Manish Raj Singhania, president of Federation of Automobile Dealers Associations (FADA), told ET. “Dealers are stressed and are offering discounts on top of what companies are giving to liquidate inventory.”
He said banks and financial institutions fund dealers to carry stocks for a limited period, usually 30-45 days. However, given the pressure in the channel, some financial institutions are looking at extending inventory funding for 90 days, Singhania said. But when stock levels are high, auto retailers offer discounts to balance inventory and to clear pending payments to banks, as any default will end up impacting availability of capital for running operations going ahead, he explained.
DISPATCHES IN LOW GEAR
In July, wholesale dispatches from factories to dealerships declined by 2.5% to 341,510 units for the first time in more than two years. Wholesale volumes, industry insiders said, are likely to dip further this August.
Automakers and dealers are banking on the upcoming festive season, which starts next month with Onam in Kerala, for the momentum to pick up in the market.
“Kerala will be a harbinger of what we can expect during the festive season this year,” said the senior industry executive cited earlier. “If sales take off and inventory gets liquidated, wholesales will move. Or else, dealers may be hesitant to take more stocks. So far, vehicle sales in Kerala have been faring well due to inflow of remittances and better natural rubber prices.”
The average discount per vehicle at Maruti Suzuki stood at Rs 21,700 in the first quarter ended June, up 50% from Rs 14,500 in the last quarter of FY24.