FADA cautions OEMs and dealers against build-up of inventory, here’s why

While OEMs are dispatching vehicles to dealers with a purpose of stocking-up inventory for the upcoming festival season, retail sales are still at 70-75% levels despite the low base of last year, Vinkesh Gulati, the new Fada president, said. Fada urged the government to announce demand boosting stimulus while saying that it awaits the announcement of reduction in GST rate for two-wheelers.

By:September 10, 2020 10:49 AM
Automobiles Sales seems gaining momentum, vehicle sales figure better in august, maruti suzuki, hyundai, mg motor, mahindra and mahindra, toyotaImage: Reuters

The Federation of Automobile Dealers Associations (Fada) on Wednesday cautioned automobile makers (OEMs) and the dealer fraternity to avoid excessive inventory build-up, which may lead to unmanageable interest cost, thus further resulting in dealership closures. While OEMs are dispatching vehicles to dealers with a purpose of stocking-up inventory for the upcoming festival season, retail sales are still at 70-75% levels despite the low base of last year, Vinkesh Gulati, the new Fada president, said. Fada urged the government to announce demand boosting stimulus while saying that it awaits the announcement of reduction in GST rate for two-wheelers. “We also await the much-required incentive-based scrappage policy. Both these measures will act as demand drivers for two-wheelers and especially medium & heavy commercial vehicles sales in India, thus once again making auto industry, a lead indicator for India’s growth,” Gulati said.

Commenting after releasing the August 2020 vehicle registration data, he said with the start of the festival season and the Centre’s continued effort to open up India, the month of August saw good numbers. August also saw an arrest in decline and pullback efforts on all fronts were visible, though on a year-on-year basis, all categories except tractors continued to fall, though at a slower pace. Entry-level passenger vehicles were in high demand as personal mobility is being preferred with the current pandemic showing no sign of abating. Apart from the rural market, which has been showing revival signs, for the first time urban centres showed initial signs of demand pullback.

With the government’s priority in spending towards rural development and agriculture, coupled with a good monsoon and a healthy sowing season, tractor, small commercial vehicles and entry-level passenger vehicles positively impacted August sales, he said. Overall demand is still not back to the pre-Covid levels as banks and NBFCs continue to have a cautious approach towards funding. commercial vehicles. Especially M&HCV category is still suffering from higher lead times with financiers and an increase in cost of acquisition leading to viability issues. A stricter Cibil score is also affecting customer finance, Gulati added.

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