Auto retail sales up 15% in January but high inventory remains a concern

Retail vehicle sales across India saw strong growth across all vehicle categories this January, with the overall market expanding by 15 per cent.

Two-wheelers (2W) sales grew 15 per cent, followed by three-wheelers (3W) at 37 per cent, passenger vehicles (PV) at 13 per cent, tractors at 21 per cent and commercial vehicles (CV) at a modest 0.1 per cent.

The Federation of Automobile Dealers Association, in a release Tuesday, said demand for two-wheelers stayed strong, fuelled by the rural market.

The two-wheeler segment is likely to benefit from the government's good crop production estimates and continued support for the rural economy, the Association said.

The passenger vehicle segment achieved a new all-time high in January, retailing 393,250 vehicles and surpassing the previous record set in November 2023.

However, a persistent concern lies in high inventory levels, which still hover in the 50-55-day range, posing a challenge for auto dealers.

Sales in the tractor segment also saw a positive uptick after a slowdown in previous months, likely driven by anticipation of a good rabi crop output and favourable weather conditions for wheat cultivation.

The Association asserted that the commercial vehicle segment might experience a slight demand taper in the fourth quarter due to a high base effect and upcoming elections. However, long-term fundamentals, it said, remain positive, with expectations of a post-election rebound as industries resume tender processes.

The government's optimistic crop production estimates and continued support measures are expected to boost the rural economy, potentially leading to even higher tractor demand and increased sales of entry-level 2Ws in rural areas, the Association said.

Faced with high inventory levels, FADA President, Manish Raj Singhania, suggested recalibration of production in line with the market demand.

"However, despite this achievement, serious concerns remain regarding PV inventory levels, now in the 50- 55 day range," Singhania said.

"This calls for an immediate recalibration of production from OEMs to better align with actual market demand and avoid future oversupply issues. As adaptability is crucial in this dynamic industry, OEMs must balance innovation with strategic production planning to ensure sustained success and overall market stability," he said.

Talking about outlook, the Association said the ongoing marriage season, and anticipated income from agricultural sales provide a positive foundation for continued consumer spending, supporting growth in the two-wheeler segment.

Increased vehicle availability and successful new model introductions across all segments hold the potential to stimulate market demand, it said.