Inventory is somewhat better than what it was sometime back, but it is still not equivalent to what we want. Typically we try to keep stocks of less than a month but it may be slightly more.
By Pritish Raj
Honda Cars India, which has a market share of around 5%, saw its domestic sales plunge by over 50% y-o-y in August as the company had to cut production to control high inventory at the dealers. The company has been offering highest-ever discounts — up to 15% on models like the CR-V and the Amaze to clear inventory. Rajesh Goel, senior VP & director, marketing & sales, told FE’s Pritish Raj if there is no GST cut on vehicles, it will take much longer for the demand to revive. Edited excerpts:
Honda’s wholesale volumes fell by over 50% in August as dealers were saddled with excess stock. What is the inventory situation right now?
Inventory is somewhat better than what it was sometime back, but it is still not equivalent to what we want. Typically we try to keep stocks of less than a month but it may be slightly more. We keep making corrections and now due to the BS-VI roll-out, we cannot keep pushing the BS-IV stocks.
The slowdown in vehicle demand is lasting longer than the previous periods. Do you think manufacturers this time failed to anticipate such a prolonged slowdown?
Principally, I agree with what you are saying, but how do you define anticipation? Slowdown, I think, is historically and the world over a difficult thing to anticipate. Mostly you figure out when you are right in the middle of it and once it hits you on the face. Last year, every month the industry was hoping things would get better but after all the reasons got exhausted and even after elections, demand didn’t improve, people started realising that there is a problem. This is true for any slowdown anywhere and that is the nature of these kinds of cycles.
But this time there were many hints, still manufacturers kept pushing stocks in anticipation of good festive demand. Don’t you think they could have controlled the inventory last year and situation could have been better today?
Maybe yes, it could have been controlled, but the industry also has a responsibility to keep building the momentum, for which there are two tools, either there can be discounting or supplies could be pushed. Typically in an economy, as long as people are spending, value is being created and that’s what defines the GDP. If the people are buying, slowdown should not happen ideally, there should only be a time lag and that is what industry keeps anticipating.
There are several speculations over GST cut, but in a scenario where it doesn’t happen, how long will it take for the demand to improve?
I think it is going to take some time and to expect that the industry will be at the same level as last year is not realistic. Regarding numbers on how much lower the industry will end at, everyone will have their own figures. Hopefully next fiscal things would start looking up.
Do you see any green shoots this festive season?
I believe demand in October will improve as today or October could possibly be the best time to buy. Discounts are all-time high but if the customer expects it will go higher, it will not because carmakers have also realised they don’t want to take risks. Everyone is cutting production so to believe car prices will halve is unrealistic. That feeling is also settling in.
But over the past year vehicle prices have gone up by 15-20%, so even if the discount is at highest levels, the effective net price is still high…
For a customer, purchase decision is based on should I buy today or postpone it to a later date. Prices have gone up due to certain regulations but those were for customers’ safety. The prices which have gone up will not come down again, so every customer needs to think that prices may go up in future due to the BS-VI norms, therefore it makes sense to buy now.