By Nandan Mandayam
BENGALURU (Reuters) -Stung by leftover inventory and unsure about consumer spending, India's auto dealers are worried about having to discount more to boost demand in the upcoming festive season, a representative of the dealers' body said on Thursday.
The double whammy of higher inventory costs and deeper discounts is a nightmare for auto dealers as that has a direct impact on their profit margins.
"With our inventory already at record levels, buyers are expecting even higher discounts," said Manish Raj Singhania, president of the Federation of Automobile Dealers Associations.
Dealerships' sales of cars fell 4.5% in August, their third drop so far in the current financial year that began in April.
India's top three carmakers Maruti Suzuki, Hyundai (OTC:HYMTF) and Tata Motors (NYSE:TTM) reported a drop in sales by dealers to customers of 8.5%, 12.9%, and 2.7%, respectively. Earlier this week, they also reported a drop in sales to dealers.
Industry leader Maruti Suzuki posted a 7% rise in sales of its utility vehicles, mostly SUVs, to dealers in August, while those of small cars such as Alto and Wagon-R declined 19%, company data showed.
The carmakers had previously said they would moderate production to address the high inventory issue. They did not respond to Reuters requests seeking fresh comment.
The slump in car purchases by retail buyers contrasts with an upturn in overall consumer spending, which hit a seven-quarter high in April-June.
Auto sales are a key indicator of private consumption. India's auto industry forms 7% of its GDP, per government data.
Levels of unsold cars in the world's No.3 auto market rose to a record 70-75 days in August, valued at 778 billion rupees ($9.27 billion). Discounts, too, are at an all-time high.
While newly launched models of sports utility vehicles continue to sell steadily, dealers are struggling to sell hatchbacks, sedans and some older SUV models, Singhania said.
Many buyers have deferred their purchases till October, hoping for bigger discounts, FADA noted, adding that heatwaves in the summer months and heavy rains thereafter hurt showroom visits and delayed purchase decisions.
Singhania hopes inventory levels will come down in October, during the Navratri and Deepavali festive seasons when Indians typically tend to make big-ticket purchases.
Analysts played down the chances of a bumper festive sales season.
"We don't expect any major relief during the festive season," said Amit Hiranandani, an analyst at SMIFS.
($1 = 83.9640 Indian rupees)