Passenger vehicle manufacturers have asked auto financiers to extend the credit period for dealers from the current 60 days to 90 days, a recent report has said.
(Representational Image; Source: iStock)
Passenger vehicle manufacturers have asked auto financiers to extend the credit period for dealers from the current 60 days to 90 days, a recent report has said.
The manufacturers highlighted an increasing pressure on retail channels due to slowing sales and accumulating stock at car dealerships.
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However, dealers argue that extending the credit period would not be beneficial. Instead, it would increase the financial strain due to higher interest costs. Currently, stock levels in sales channels have risen to 55-60 days, compared to the usual 30 days for this season.
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It is to be noted that last week, Federation of Automobile Dealers Associations (Fada) expressed concerns about increasing four-wheeler inventory levels at dealerships, now at a 60-day stockpile or approximately 550,000 units.
This could impose a substantial financial burden on dealerships due to the additional interest cost from the extended holding period.
The situation was discussed by several auto financiers and dealers at the third Annual Finance & Insurance Summit hosted by the Fada.
In India, automakers follow a cash and carry model, where retailers obtain loans from banks and non-banking financial companies to purchase inventory from manufacturers for 45-60 days.
In May, the sales of retail cars dropped by 1 per cent similar to the slowdown in wholesale growth. This decline was attributed to the impact of elections and extreme heat by Fada, which reduced demand and delayed purchase decisions.
The wholesales of Passenger Vehicle (PV) in India spiked by 4 per cent year-on-year in May to 347,492 units, as compared to the same month last year. In May 2023, the overall passenger vehicle dispatches from companies to dealers stood at 334,537 units.
Two-wheeler sales rose 10 per cent to 1,620,084 units last month as compared to 1,471,550 units in the year-ago period. Three-wheeler dispatches rose 15 per cent to 55,763 units in May as against 48,610 units in May 2023.
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