FADA August updates: Inventory levels have exceeded a 60-day supply for the first time; need for vigilant monitoring

Established in 1964, the Federation of Automobile Dealers Associations (FADA), often referred to as FADA, serves as the leading national organisation for the Automotive Retail Industry in India. FADA’s primary focus is on the sales, servicing, and distribution of 2/3 Wheelers, Passenger Cars, UVs, Commercial Vehicles (including buses and trucks), and Tractors.

On September 5, 2023, the vehicle retail data for August 2023 was announced. Let’s take a look:

  1. The automotive retail sector in India grew 9% YoY in August 2023, lower than the previous month.

  2. The growth was consistent across all vehicle categories, except 2W which remained subdued at -11%.

  3. The overall retail landscape exhibited a modest 1% growth against pre-pandemic benchmarks, indicating early signs of recovery.

Notably, inventory levels for Passenger Vehicles (PV)have reached an all-time high, surpassing the 60-day threshold even before the onset of the 42-day festive period. This reignited the discussion, let’s break it down:

  • PV oversupply reaches new heights. This means that there are a lot of PVs that are not being sold. The normal inventory level for PVs is around 45 days. A higher inventory level means that there is a surplus of PVs in the market, which can lead to lower prices and lower sales.
  • The suboptimal monsoon is a concern for the PV industry. The monsoon is important for agriculture, and a poor monsoon can lead to lower crop yields. This can impact rural demand for PVs, as rural households may have less money to spend on discretionary items.
  • The Navratri-Diwali period is a major festive season in India. It is a time when many people buy new cars. However, the suboptimal monsoon could dampen demand during this period.

Overall, the PV industry is facing some challenges. The high inventory levels and the suboptimal monsoon could lead to lower sales in the coming months. However, the festive season could help to boost sales.

Some additional things to ponder:

  • The high inventory levels are due to a number of factors, including the chip shortage, which has disrupted production, and the pent-up demand that has built up during the pandemic.
  • The Navratri-Diwali period is a major festive season, but it is not the only time that people buy new cars. The PV industry will also be looking to the festive season in December, as well as the upcoming year, for sales growth.

While the dealership network remains optimistic, the Federation of Automobile Dealers Associations (FADA) maintains a cautious about the same.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.