The average incentive in the second quarter of 2024 rose to Rs 31,258 from Rs 24,350 a year earlier, according to data collated by consultancy firm Jato Dynamics. Diesel cars topped the list with offers totalling Rs 66,203 on average, followed by electric (Rs 31,185), petrol (Rs 29,209) and CNG (Rs 19,353).
Post-pandemic, the industry experienced a sales boom, fueled by accumulated demand, a heightened inclination for personal mobility, and reduced interest rates, enabling manufacturers to hike prices by an average of 6.5% during 2022-2023. However, current market trends indicate a decline in demand and escalating competition, potentially prompting automakers to revise their strategies, according to industry analysts.
As companies balance between preserving margins and maintaining market share, consumers may find themselves in a buyer’s market, said Ravi Bhatia, president of Jato Dynamics.
As the auto sector navigates this new landscape, the coming months will be crucial in determining whether this is a temporary adjustment or a long-term market realignment, he added.
The market dynamics required even an automaker like the local unit of Toyota Motor, which is known to enjoy strong pricing power, to reintroduce incentives, with it offering up to Rs 52,895. Car market leader Maruti Suzuki has taken a cautious approach, giving Rs 22,453-26,246 in discounts and other incentives to buyers.
INVENTORY PRESSURE
Automakers typically begin stocking inventory for the festive season in August annually. However, this year, they commenced in June, anticipating an increase in demand before the peak festive period, which has led to current inventory levels reaching 55-60 days, according to dealers.
“We have limited capacity in stocking vehicles. Banks have increased inventory funding to support the high stock levels,” said Nikunj Sanghi, a leading automotive dealer in Alwar, Rajasthan.
Meanwhile, manufacturers are continuing with their production schedules, especially of SUVs that are in high demand. With high inventory and no cut in production, the discounts will likely continue through the festival period; it will not be a short-term phenomenon, dealers said.
“We are asking our dealers to create warehouse capacity and we are talking to banks to arrange for inventory funding, anticipating a demand pick up in the upcoming festival season,” said a senior executive at a car company.
According to an analyst at a brokerage house, while the current stock levels are not concerning due to their high base, they suggest that factory dispatches are surpassing retail sales. If this trend persists and demand does not match the supply, distribution channels may face pressure. Auto industry executives note that with most car models readily available and customer orders declining amidst high inventory levels, a decrease in retail sales is likely to affect wholesale operations as well.
