Dealers and the automobile industry is grappling with a huge inventory build up with the dealers.
According to media reports, the inventory build up is now touching 79,000 Crores. Normally, dealers carry an inventory of 30-35 days but this time around it has already crossed 80-85 days.
When vehicles get delivered to the dealers, they start incurring costs like yard costs, theft costs, security and safety costs and also finance costs. All these costs are making them see red.
Sales have failed to take off even at the start of the festive season.
Many vehicle manufacturers are now offering discounts to help clear the inventory.
Look at it this way too. Almost 50% of the sale price of a vehicle is government taxes, road tax, registration charges, insurance, etc. Thus for the time being the government too is suffering a loss of income to an extent of 79,000 Crores, (assuming that the 79,000 Crore is ex-factory price).
State Governments collect road tax and registration charges, thus they too are being deprived of revenue.
Insurance companies too are not getting new business.
All of this has a negative effect on the economy.
Assuming that each vehicle is worth 7,00,000, the manufacturers are grappling with almost 11.28 Lakh vehicles lying in the stock yard.
This will soon have a domino effect on manufacturing. Companies will have to slow down their production lines or even cut down on the number of shifts that they are running. As most companies now employ contract labor, there will be an income loss to the labor force, which in turn will lead to more economic distress.
Those who are OEM vendors to vehicle manufacturers are going to suffer slowdown too, which in turn will lead to them cutting productions, laying off workers, and taking other measures to stay alive.
This inventory buildup is going to have an effect on our GDP too as the automobile sector contributes a robust 8% to our GDP.
