Record high vehicle retail sales for Nov at 28.54 lakh units, 2W and PVs shine

Vehicle retail sales in November 2023 touched a record high of 28.54 lakh units surpassing the previous record set in March 2020, during the industry's transition from BS-4 to BS-6 emission norms, when 25.69 lakh vehicles were sold, according to the Federation of Automobile Dealers Associations (FADA).

Two-wheelers (2W) and passenger vehicles (PVs) shine

The 2W category sold 22.47 lakh vehicles, recording a 49 per cent month-on-month growth and 21 per cent year-on-year growth. This is also an increase of 1.77 lakh vehicles compared to the previous high of March 2020, underlining a turnaround in the rural economy, an aspect that has been much talked about post-pandemic.

The PV category also sold 3.6 lakh vehicles, up 1.82 per cent from 3.53 lakh units sold in October 2023 and a 17 per cent YoY growth. This is also ~4K vehicles more when compared to previous highs of October 2022, FADA said.

“For the 2W category, the month witnessed a significant boost in auto retail buoyed by the festive excitement and enhanced by strong rural sentiments, thanks to thriving agricultural income. New product launches and better model supply further fuelled the market’s growth, while electric vehicle sales demonstrated an encouraging upward trajectory," said Manish Raj Singhania, president of FADA.

The 2W sales category is further set to benefit from a liquidity boost, particularly in agricultural regions and the ongoing marriage season, with around 38 lakh marriages expected to drive vehicle sales.

However, FADA says challenges persist as severe weather conditions impacting rabi cultivation might affect rural incomes, potentially dampening sales.

However, the sales of tractors and commercial vehicles (CVs) dropped by 21.28 per cent and 1.82 per cent respectively as compared to the same month last year.

"The CV category saw a challenging Nov 2023, driven by poor market sentiment. Seasonal slumps, exacerbated by unseasonal rains damaging crops and impacting transport demand, coupled with liquidity issues and delayed deliveries, further strained the industry. States going into elections also added to the woes, overshadowing the brief uplift from festive sales and the slight increase in tourism that helped in sales of buses,” added Singhania.

According to the auto dealer body, the CV category is expected to see some recovery, driven by renewed business activities post-elections and positive movements in key sectors like cement and coal.

High PV inventories are still a concern

The average inventory for PVs at the end of November stood in the range of 61-64 days while it is 32-37 days for 2Ws.

PV sales benefitted from improvements in the supply chain and festive demand that lasted in the first half of the month, however, the period following the festivities saw a noticeable slowdown, coupled with a critical challenge of slow-moving inventory due to a mismatch in demand and supply which is still not resolved.

"This issue casts a shadow over the otherwise positive trends. The current PV inventory underscores the need for OEMs to strategically reduce dispatches of slow-moving vehicles, especially in the entry-level category," Singhania underscored.

Historically, it is recognised that holding inventory beyond 30 days starts to erode dealer profitability as the financial burden is intensified by the high-interest costs of inventory funding from financial institutions, he added.

Overall, backlogs in orders might also contribute to a sales boost. The PV sector shows potential for growth with year-end offers and discounts expected to stimulate sales, along with an improved vehicle supply and new product launches

"The Indian auto retail must navigate through a complex landscape of consumer preferences, high inventory in the PV category and external economic factors, including potential inflation impacts on vehicle sales in the near term," concluded Singhania.