Two-wheeler dealer inventories rise as passenger vehicle pile-up eases

Two-wheeler manufacturers hopes of sales revival are causing a lot of heartburn for showroom owners, who claim that inventory levels have spiked to dangerous levels after witnessing some dip in the previous couple of months.

As per the available data, the average inventory level at two-wheeler showrooms across the country currently stands at 60-65 days as manufacturers are anticipating an improvement in demand with the start of monsoon. The inventory was about 50-55 days during the March-April, when vehicle makers, also called original equipment manufacturers (OEMs), had cut down production to match the slowing demand.

However, it is still lower than the alarming levels of 80-90 days of the past few months. In some of the geographies, the inventory level had risen to as high as 100 days, retailers claim. The inventory level, which has been highest for the two-wheeler category, had turned into a nightmare for the retailers as muted sales were pushing many into deep financial losses.

According to the industry insiders, the two-wheeler OEMs had raised the inventory levels in February after reducing it in December-January, anticipating an increase in sales. However, things did not go as anticipated with inventory piling up at the showrooms. Retailers are of opinion that the inventory pile-up happened because the OEMs wrongly predicted that the slowdown during the last months of 2018 was a temporary phenomenon and sales was predicted to spike up in the new year.

However, the silver lining for the auto industry has been consistently reducing inventory levels of passenger vehicles (PV). With the current trend continuing for a couple of more weeks, For the first time since the downturn, the PV inventory will come down to healthy levels of around four weeks across many geographies and head towards the ideal level of 21 days.

Ashish Kale, president, Federation of Automobile Dealers Association, said some serious regulation of wholesale billing is required to get dealer inventory to 21 days as inventory in both these categories has risen to alarming levels. "Two-wheeler dealers have been facing high stock situation since September 2018, the start of the downturn," he said.

Kale said the rise working capital costs coupled with falling sales can turn into a serious situation for the dealers if not corrected at the earliest.

The domestic auto sales have been experiencing a prolonged slowdown for the past over 10 months. According to the executives across the OEMs, retailers, component makers, one of the primary reasons for the slowdown has been tightening of liquidity by non-banking finance companies following the emergence of Infrastructure Leasing & Financial Services crisis. The other prominent reasons include the rise in fuel prices, rural distress due to lack of rains in certain regions of the country, new insurance laws leading to increase in its costs, the slowdown in certain industries, leading to dip in consumer sentiments.

A 20-year analysis done by research firm Edelweiss reveals that the industry is currently in the middle of a down cycle. The study points out that the current slowdown is different from the earlier ones on at least four counts – driven by domestic factors rather than global events, stiff competition from growing unorganised pre-owned vehicle market, significantly higher margin pressure and prohibitive jump in vehicle costs.