Retail sales of passenger vehicles (PV) fell by 4.5% in August, primarily due to an "alarming" surplus of unsold inventory and heavy rains that dampened consumer interest, according to a recent report from the Federation of Automobile Dealers Associations (FADA).

In August, 309,053 passenger vehicles were sold, down from 323,720 in August 2023. The inventory of unsold vehicles has reached unprecedented levels, stretching up to 70-75 days, with a total of 780,000 vehicles valued at ₹77,800 crore. This represents a 3.5% drop in sales compared to the previous month.

Sales of tractors and commercial vehicles (CVs) also saw declines, with drops of 11.4% and 6.1%, respectively. However, two-wheeler (2W) and three-wheeler (3W) segments experienced growth, with increases of 6.3% and 1.6%. Overall, India's automobile retail market saw a modest year-on-year growth of 2.9% in August.

Manish Raj Singhania, president of FADA, noted that the excessive rainfall has dampened enthusiasm in rural areas, particularly affecting two-wheeler sales. Despite these challenges, there is an expectation of a 6% increase in auto retail sales for the entire year. August saw 15.9% more rainfall than usual, with significant surpluses in the northwest (31.4%), east and northeast (7.2%), and central India (17.2%). Conversely, peninsular India experienced a 1.3% deficit in rainfall. The monsoon season began with extreme heat waves that delayed rainfall, followed by heavy showers that caused widespread flooding.

The two-wheeler market fell by 7.3% month-on-month due to the adverse weather conditions but grew by 6.3% year-on-year. The sales gap between top competitors Hero Motocorp and Honda Motorcycle and Scooter India was narrow, with market shares of 26.8% and 26.35%, respectively.

Singhania highlighted that many customers delayed their purchases, anticipating new product launches or due to market saturation and changing preferences. Limited marketing efforts from original equipment manufacturers (OEMs) and overall subdued market sentiment further impacted sales.

Sales of commercial vehicles dropped by 8.5% month-on-month and 6.1% year-on-year, affected by heavy rains, floods, landslides, reduced construction activity, and sluggish demand in industrial sectors. August's CV sales totaled 73,253 units, down from 77,967 units in the same month last year.

Despite the upcoming festive season, the market remains under pressure from delayed customer purchases, poor consumer sentiment, and ongoing heavy rains. Inventory levels are critically high, with some dealers facing severe financial strain. Singhania urged banks and non-banking financial companies to curb funding to dealers with excessive stock and called on OEMs to adjust their supply strategies to avoid a potential crisis in the auto retail sector.

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