Covid impact: Auto dealers to keep minimum stocks
Singed by financing costs of unsold inventory, dealers and vehicle makers want minimum stocking in yards and sales touch points. Digital bookings for sales and service and just-in-time deliveries will allow dealerships to hold just-in-time inventory.
That will reduce inventory carrying costs, amounting to roughly ₹30,000 crore. So, regional stockyards are alternatives that automakers are weighing.
If this plan finally reaches fruition, it will provide relief for dealerships and banks as the major pain point for dealers and banks has been inventory funding.
Already, there are about a dozen stockyards operated by top 10 vehicle makers, and there will likely be another half a dozen to ensure adequate stock availability and ease the burden on dealers.
Ashok Khanna, former group head for vehicle loans at HDFC Bank, said that in post-lockdown era, inventory control will require carmakers to assess demand more rigorously and not flood the dealerships to help reach monthly sales targets. “There should be no pressure on dealers to provide funds to achieve the targets; gone are the days when dealers used to hold 45-60 days’ inventory. The first effort must be to return to the banks what has been borrowed. The limits must be cut to 15 days stocks maximum. OEM stock depot is the final answer to this problem,” added Khanna.
While shutters were down for about a month and half, sales executives at dealerships and automakers have reached out to more than 2.5 million prospective buyers, apprising them of the safety protocols and generating hot leads for the sale of 250,000-300,000 vehicles, industry insiders said.
This would be just enough to cover a month’s sales at pre-Covid levels, but dealers don’t want stock to pile up, as inventory cost accounts for much of working capital.
The Federation of Automotive Dealers’ Association (FADA) president Ashish Kale said, “As against holding 25-30 days’ stock at dealers, we are urging carmakers to bring down stock to 10 days,” adding that automakers could set up regional stockyards for the rest.
Mahindra and Hero dealer Nikunj Sanghi said, “We have to look at ways to reduce stocks.”