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After a dim Diwali, Motown may shower discounts to clear pileup

Last year, OEMs and retailers offered discounts and benefits up to Rs 8 lakh

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After witnessing a lacklustre demand for vehicles during the just concluded Dussehra and Diwali season, original equipment manufacturers (OEMs) are now pinning their hopes on year-end discounts in order to fuel sales and clear the old inventories.

However, the task for the industry seems to be an uphill one as customers historically tend to avoid purchases in December as they wait for updated models in the New year.

According to industry insiders, the less-than-anticipated sales during the festive season have led to the inventory pile up at the retailers' end, forcing most of the OEMs to slow down by extending the shutdowns of their manufacturing plants. Also, retailers who have large unsold inventories are unlikely to shy away from offering further benefits and discounts from their side to the customers.

Last year in December, the OEMs and retailers had lined up discounts and benefits starting from tens of thousands of rupees for entry-level vehicles to Rs 3-8 lakh for luxury cars.

The low consumer sentiment, a spike in charges for insurance policies, tightening of financing to the end consumers by non-banking financial companies (NBFC) in the backdrop of IL&FS crisis and rising fuel prices are some of the primary reasons for a drop in bookings during the festive season.

An executive at a Maruti Suzuki showroom in Mumbai said the sales this season were one of the worst seen in the past few years. "There was an increase in enquiries but the actual sales were not up to the mark. As we move towards the year-end, let's hope that the upcoming discounts bring some cheer," said the executive.

The latest data released by Society of Indian Automobile Manufacturers (SIAM) reveals domestic sales for passenger vehicles rose just 1.55% in October, though the growth managed to snap three months of consecutive decline. PV sales in October stood at 2,84,224 units as against 2,79,877 units in the year-ago month.

SIAM director general Vishnu Mathur said the real impact of festive sales will be known only next month as Diwali was in November this year. Around 75% of the total festive sales happen during Diwali, which fell on November 7th this year. The data for this month is unavailable. "However, till the end of October, sales have been slow and it wasn't like festive season," said Mathur.

Despite the lukewarm response from customers during the festive season, SIAM, which is a lobbying body for vehicle manufacturers, is maintaining its growth forecast for PVs at 7-9% for the fiscal. In the April-October period this fiscal, total PV sales have grown 6.10% to 20,28,529 units as against 19,11,883 units in the year-ago period.

Commercial vehicle (CV) sales have been slightly better due to a low base, but even this category failed to meet expectations. Vinod Sahay, chief executive officer, Mahindra Truck and Bus and Construction Equipment Divisions, M&M, recently told DNA Money that the sales during the festive season had not been that encouraging, but he expects the demand to pick up with the start of New year. "We are hopeful of things improving by the start of next year."

Sridhar V, partner, Grant Thornton India LLP, said passenger vehicles including cars and sports utility vehicles saw a significantly less than expected growth, which has resulted in a pile-up of inventory at the dealership-end. "To clear the inventory at a faster pace, most carmakers have taken to the strategy of providing discounts. At the same time, they have also resorted to shutdown for an extended period to reduce buildup of inventory as well. The whole idea is to ramp up as much sales over the year-end."

...& ANALYSIS

  • Data shows from SIAM domestic sales for passenger vehicles rose just 1.55% in October, though the growth managed to snap three months of consecutive decline
     
  • SIAM director general said the real impact will be known next month as Diwali was in November. However, till the end of October, it wasn't like festive season, he said

(With inputs from PTI)

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