Heavy discounts to dispose of inventory likely

Expect heavy discounts at automotive dealerships, especially two-wheeler sales outlets, over the next two days. As the clock ticks towards the deadline of a ban on the sale of BS-III vehicles after March 31, automotive dealers across the country are expected to make a last-ditch effort to sell their inventory.

As of now, dealerships are sitting on a total inventory of 824,000 vehicles that are BS-III compliant. Of this, 96,000 are commercial vehicles, 600,000 two-wheelers and 40,000 three-wheelers. A judgement from the Supreme Court on Wednesday banned registration and sale of BS-III vehicles from April 1, thus rendering an inventory, estimated to be worth ~12,000 crore, practically worthless.

Around 20,000 automotive dealers across the country are thus staring at an uncertain future. John Paul, president, The Federation of Automobile Dealers Associations (FADA), said it had come as quite a blow for dealers. “In small towns, this might mean the end of business for many dealers and sub dealers, especially of commercial vehicles,” he said, adding that the association was waiting for the copy of the order to understand the fine print.

Dealer sources indicated some original equipment manufacturers (OEMs) have already contacted the dealerships and asked them to go for heavy discounting to dispose of the inventory. “They have worked out some schemes on their part, and they asked us to offer discounts from our margins, so as to liquidate as much as we can. But, there is a limit to how much the market can take in just two days,” said a two-wheeler dealer here. Discounts may range into 20-40 per cent of the price of the vehicle.

The entire dealer inventory is financed. In the coming months, defaults were likely to rise from the sector, said a senior manager with a private bank.

Shrikant Akolkar, research analyst auto and auto ancillary, Angel Broking, said, “The chunk of the inventory of BSIII vehicles pertains to the two-wheelers segment and these may have to be diverted to the international markets where BS-III vehicles are still permitted.” Dealers, however, feel that diverting to export markets would be the last resort as this means huge financial loss for the OEM who has already paid excise on the sale of the vehicle to the dealership.

Paul said FADA has already written to OEMs and expects some favourable solution to the complex situation. OEMs perhaps need to work out a plan with dealerships as choked dealers would hold buying new BS-IV vehicles.