India Auto Inc Stuck In Traffic Despite 7.5 Lakh Unsold Cars Gathering Dust In Stockyards

I saw around 7,00,000 unsold cars sitting quietly on massive tracts of land in and around the National Capital. Like the thousands twiddling their toes on the ‘benches’ of India’s infotech firms, these just-manufactured vehicles were stuck in the stockyards. Since my visit, their numbers have reportedly swollen to 7,50,000.

Clearly, the Indian auto industry is facing a problem. On the one hand, there are more new cars and launches than ever before, given the economies of mass production. On the other hand, consumers aren’t rushing to buy them anymore. For carmakers and dealerships, this is a depressing cocktail of over-production, shrinking incomes and brutally tough competition. As to how the auto sector got here, it is down to questionable decisions.

Over-Production Is Not a Solution, But A Problem

Consider the strategy of car companies in India in 2021. Despite a predicted slowdown due to Covid, auto majors decided they would sell a million or more cars each year, with smaller players equally bullish on sales. Fast-forward to today, and instead of happy customers driving off into the sunset, what we have are stockyards full of unsold vehicles, and dealers sweating bullets as they try to reduce inventory.

It is a classic case of over-production, driven by optimism and a rush for growth, as had happened to the Indian telecom industry. Auto firms believed if they built the cars, customers would buy them. But customers didn’t. Instead, they began cutting their expenditure as income levels struggled to keep pace with inflation. The Reserve Bank also noted that earnings in India were not keeping up with inflation and higher household expenditure.

Shoring up this observation were findings of the Household Consumption Expenditure Survey 2022-23, which said average real income growth was at a 40-year low, with headline inflation continuing to hurt households. The RBI also scaled down real GDP projections for FY ’25, with ‘real GDP growth’ at 7.2 per cent (7.3 per cent earlier) and Q1 at 7.1 per cent (7.3 per cent earlier). The cumulative impact of lower earnings could lead to further reining in of growth projections.

As should have been obvious, aspirational expenditure (including automobile sales) is down. This, despite tempting offers and never-before car loan repayment options being pushed out. For most families, though, the math just doesn’t add up.

Bumper Discounts Are Great, But Few Are Buying

With their backs to the wall, and a dire need to offload stocks, dealerships have pulled out all stops to induce and entice. The media is overflowing with ads and promos – ‘Discount’, ‘Festive Offers’, ‘Limited-Period Deal’. Walk-ins at auto showrooms are greeted with freebies that make their head spin – ‘Zero Down Payment’, ‘Five-Year Warranty’, ‘Free Insurance’.

As tempting as these offers might be, discount strategies work only when people are thinking of buying. Today, with daily essentials such as groceries, fuel and education competing for household budgets, a shiny new car doesn’t seem as essential anymore as it did yesterday. A loan is a loan, and any car is a depreciating asset from Day One.

The Centre for Monitoring Indian Economy (CMIE) voiced similar thoughts. “When basic living expenses are outpacing income growth, luxury spending takes a backseat,” CMIE said, pointing out that unemployment rates were at an eight-month high of 9.2 per cent. That, in itself, is enough to explain why new car purchases are down.

Who’s Winning, Who’s Losing The Auto Race?

Hyundai Motor is so happy with the waiting period for its Creta and Verna models that it is planning to list its shares on the stock market, with the country’s largest Initial Public Offering (IPO) of Rs 25,000 crore-plus set to open for subscription soon. Toyota continues to charge a premium for everything, including cars made for it (and even badged for it) by Maruti.

Meanwhile, domestic biggie Mahindra is launching new SUVs every other month. If it was the new XUV 300 in July, bookings are now open for the Thar Roxx. Market leader Maruti is seeing units of the Grand Vitara model turn hotter than Delhi’s scorching summer months, while old faithfuls like the WagonR and Alto continue to rule rural markets.

Clearly, not every brand is suffering. With Nexon and Harrier, Tata Motors is unseating every other automaker in the SUV space. But that’s not the case with Citroën India, whose sales figures are down despite the launch of the Basalt coupe. MG India, which made waves when it arrived with the Astor and Hector, is facing challenges of its own, struggling to keep up with Tata’s SUV dominance, while still coping with the after-effects of a suddenly-patriotic Indian buyer snubbing its Chinese ownership.

Honda Motor is scratching its head to figure out how to reduce inventories of its Elevate SUV, the only model in its stable to find any takers at all, other than the Amaze, which is a cabbie favourite. Nissan, which made a habit of running to the bank every day after its Magnite launch, is hoping new models will turn things around, though its re-packaged X-Trail is turning more people away than into showrooms, given the Rs 50-lakh price-tag.

Ford, which exited the Indian market some years back, has returned with an SUV (Endeavor, aka Everest), but it too has a hefty price tag. As for VW and its subsidiary Skoda, the firm is still pretending and playing premium, even as its ads and dealerships offer unheard-of discounts. Disgruntled employees are also learnt to be making sales tough to close.

What’s The Way Out Of This Mess?

As stated, over-production is not the solution. A radical, yet simple approach would be to listen to what the market actually wants. For instance, electric vehicles (EVs) could be a saviour, provided the Government steps in with incentives and infrastructure development. Right now, owning an EV is like having a pet unicorn – it’s cool, but where do you feed it? EV adoption is rising, but nationwide charging infrastructure continues to be in limp mode.

As for the unsold cars gathering dust in stockyards, unless there’s a sudden spike in consumer confidence, they will be sticking around for a while.

For those in the market for a new ride, now is the best time to strike a deal. As a dealer said: “Going by today’s sales, I’ll throw in a free vacation with every car, so long as someone agrees to take the vehicle off my lot quickly.”

(The writer is a veteran journalist and communications specialist. Views expressed are personal)