Auto Dealer Revenue Growth Slows Amid Rising Inventory and Discounts

Crisil Ratings predicts a slowdown in auto dealer revenue growth to 7-9% due to moderated sales volumes and modest price hikes. Dealers face reduced profitability and elevated working capital debt as inventory levels rise. Sales volume growth expected to pick up modestly in the festive season.

The revenue growth of auto dealers is projected to decelerate to 7-9% this financial year, a significant reduction from the robust 14% recorded last year, due to slowing sales volumes and modest price hikes by car manufacturers, Crisil Ratings reported.

Auto manufacturers and dealers have been offering higher discounts over recent months, impacting overall profitability which is projected to dip to 3%, slightly below the three-year average of 3.5%. This scenario is further exacerbated by increased inventory levels, pushing working capital debt higher for dealers.

According to Crisil Ratings, an analysis of 110 auto dealers, covering passenger vehicles, two-wheelers, and commercial vehicles, revealed an above-normative inventory level of 50-55 days at the end of the last year. This inventory buildup has extended by another 15 days in the early months of 2024-25. As the festive season approaches, sales volume is anticipated to rise, yet inventory levels will likely remain above normal.

(With inputs from agencies.)