Auto crisis: Wholesale numbers may take a back seat amid rising inventory

The unprecedented slump in auto sales for over a year has prompted automakers to revisit some of the conventional practices. 

Among them is a plan to switch to reporting of retail data (sales to end customers) against the current figures of wholesale data (despatches to dealers). 

So far, auto firms have been reporting monthly despatches on the first of the following month.  Industry body Society of Indian Automobile Manufacturers (SIAM) compiles data across companies and distributes it to a wider range of stakeholders.  

Globally, most auto companies report retail sales based on registration data. India is one of the few markets that has been reporting dealer despatches. The move is expected to help players align production to sales better and avoid getting saddled with excess inventory, said analysts.

“The pull strategy instead of push will make the entire value chain more efficient,” said Rakesh Batra, former auto practice leader at EY. “Retail sales and not wholesale sales should be the fundamental of the business. We have been following that paradigm for many years without much thought. The inventory is a waste,” he said.   

Domestic auto sales (all segments) have been falling every month for over a year now. Companies, at their end, had been pushing inventory to dealers even as demand cooled off. As a result, several dealers shut shop.  Last month, auto sales across all segments fell 23.55 per cent year-on-year, the lowest in more than two decades. 

If the mismatch between vehicle registration data and wholesale data over the last eight months is any indication, there were enough signs on the ground of a sales slowdown coming, say experts. 

Data shows that there was a wide gap between wholesale and retail sales since November 2018 when Federation of Automobile Dealers Associations (FADA) began reporting retail data.

“With CRM (customer relationship management) software coming in, a part of the blame lies with the automobile companies. They have been ignoring the data,” said Mahantesh Sabarad, head, retail research , at SBICAP Securities.  The technological advances over the years, he said, have made it possible for manufacturers to monitor retail sales but companies have been overriding the data for market share gains.

Some like Rajiv Bajaj, managing director at Bajaj Auto, believes that the predicament facing the auto industry is self-inflicted. “There are two distinct component of the slowdown. The first being over-production and overstocking, which are a creation of the industry and responsible for 80 per cent of the problem as the industry is now rapidly correcting for BSVI.” He expects this to be over by November. 

Bajaj believes the contribution of economic slowdown to the problem is only to the extent of 20 per cent. “Nobody knows how long this will last but it certainly doesn’t deserve a cut in goods and services tax (GST),” he said.  Bajaj’s remarks on the GST cut are in stark contrast with his colleagues at SIAM. The auto lobby has been pressing for a reduction in GST from the current 28 per cent to 18 per cent. 

During a panel discussion at the auto industry’s annual conference, top officials at automakers conceded that the industry would have been better off if it had aligned production to retail sales. 

“The industry has been reporting wholesale data whereas the true measure of sales is retail,” said Ashok Taneja, managing director at Shriram Pistons & Rings during a panel discussion at the conference. In the absence of retail data, at least the components industry continued to work on the basis of forecasts, he said. “Perhaps, the vehicle manufacturers were very hopeful and continued to bill even as sales on the ground was weak. If we are able to change to retail sales, we will be more efficient,” said Taneja. 

Pawan Goenka, managing director at Mahindra & Mahindra, who was Taneja’s co-panelist, seconded him. “I fully agree that reporting retail data is the right thing to do. It will make us more efficient,” he said.