The curious case of 3,00,000 missing cars: It is automakers vs dealers in inventory mystery

Carmakers and their dealers are battling each other over inventory levels amid slowing demand.

The Federation of Automobile Dealers Associations (FADA) says their members are carrying stock equivalent to over two months of sales, that is, 730,000 units. Carmakers argue it’s about half that — 400,000-410,000 units.

FADA has written to the Society of Indian Automobile Manufacturers (SIAM) twice in less than two months, protesting at stock being dumped on dealers.


SIAM president Vinod Aggarwal said the dealers should communicate directly with companies, while adding that their concerns are inflated. “I have told them that it’s a matter between the dealer and manufacturers that have high inventory,” he said. “If FADA wants to intervene, they should write to the CEO of the company instead of writing to SIAM.”

FADA Writes to SIAM

“It’s in the interest of car companies to keep their dealers happy,” said Aggarwal. “If the dealers fail, the manufacturers will suffer. There’s no difference of opinion on this matter, but FADA is overplaying it.”

The dealer lobby group said automakers need to make deeper cuts in dispatches, in line with weak demand. Despite concerns over rising inventory expressed in a letter sent in the first week of July, the stockpile has grown—from 60 days in June to 70 days in July, FADA said in its latest missive to SIAM.

Automakers, on the other hand, said dealerships are exaggerating inventory concerns.

“Right now, our network stock is close to 38 days, which is not very high. It may vary case to case, with some dealers having a higher stock,” said Partho Banerjee, senior executive officer, sales and marketing, at Maruti Suzuki India, the country’s biggest carmaker.

Demand Slump

Passenger vehicle sales in the world’s third-largest auto market fell for the first time in more than two years in July, as sluggish demand led to an inventory glut at dealerships, forcing carmakers to curtail dispatches (counted as sales) to their channels. Sales declined 2.5% year-on-year to 341,000 units during the month.

“There can’t be smoke without any fire,” said Hemal Thakkar, senior practice leader and director, Crisil Market Intelligence and Analytics. “There’s an inventory of 55-60 days at the dealer's end. A very high level of discounts in the market is an indicator.”

Crisil has revised its growth forecast for the domestic passenger vehicle market to lower single digits, from 4-6% growth predicted earlier.

As a result, Manish Raj Singhania, president of FADA, said, “We have requested them (automakers) to align supplies with demand, launch more attractive schemes so it helps dealers liquidate inventory, and cut it to 30 days.”

According to him, inventory across sales channels on July 31 was 67-72 days, or 730,000 units, which translates into Rs 73,000 crore in value terms, assuming the minimum average selling price at Rs 10 lakh.

According to dealers, Maruti Suzuki has stocks of 37-38 days, followed by Tata Motors (35-40), Mahindra & Mahindra (35) and Hyundai Motor (30-32).

On the other hand, Veejay Nakra, president of the automotive division at M&M, Mahindra’s inventory was only five days above the norm at the end of June. He declined to comment on the industry or Mahindra’s updated inventory numbers.

Why the discrepancy?

Automakers said that while dealers undertake a survey of stocks held by a handful of dealers to arrive at an average estimate of inventory levels in the market, carmakers make their count using chassis numbers. The chassis number, or vehicle identification number (VIN), is a unique code that identifies a motor vehicle.

“What they (dealers) do is nonscientific,” said another senior industry executive. “They do a survey of stocks available with a few dealers and cite a number for the industry. Auto companies take stock of inventory in the channel by accounting for every vehicle as per chassis number. As per our estimates, industry stocks in the network are in the range of 400,000-405,000 units.”

FADA rejected the contention that it reports inventory-based on dealer surveys. “It is all based on hard data,” Singhania said. “We take wholesale data as reported by automakers and subtract the registration data collated from the VAHAN portal of the ministry of road, transport & highways. We make adjustments for retail sales in Telangana, which is not there on VAHAN yet.” The final number accurately reflects physical stocks actually in the channel, he said.

M&M’s Nakra contended, “Sometimes (the overstatement of stocks) is used as an opportunity to be more cautious about holding inventory before the festive season.”

The second executive cited earlier, who works with a leading automaker, said the quantum of loans extended by banks and financial institutions to dealers for carrying inventory also does not tally with the stock levels they say are in the channel.

“Banks have extended loans totalling Rs 42,000-45,000 crore for inventory funding,” he said. “Even if one were to consider institutional sales, where payments come with a lag, the difference between stock levels of Rs 73,000 crore claimed and exposure of banks in inventory funding is too large. It raises the question, where have the remaining loans of Rs 28,000 crore for carrying stocks come from?”