India's Top Two SUV Makers Face Inventory Overload

The recent price cuts by Mahindra & Mahindra Ltd. and Tata Motors Ltd. for their sports utility vehicles came on the back of inventory build-up, and more benefits might be on the horizon, according to an industry expert.

Mahindra & Mahindra slashed the starting price of its AX7 variant of the XUV 700 from Rs 21.4 lakh earlier, to Rs 19.49 lakh on Tuesday. The price cut came close on the heels of Tata Motors reducing starting prices of its Harrier and Safari models, giving benefits of up to Rs 1.4 lakh on SUV variants, according to a statement on Tuesday.

“For Mahindra, this is a case of demand-supply mismatch,” Vinkesh Gulati, chairman (research and academy) at the Federation of Automobile Dealers Associations, told NDTV Profit. “The XUV 700 AX5 (a mid-spec variant) is in short supply, but the top-end AX7 variants remain unsold.”

Gulati explained that 30-35 days worth unsold inventory is normal and is still manageable by a dealer. But 70 days of overflow in inventory levels is unusual and his suggestion was that the automakers either improve demand or reduce supply.

The main reason for this is that the northern part of the country did not have a good marriage season in March and June, according to Gulati. Therefore, there was a lack of festive-season sales for automakers. The industry expected inventory to go up to 40 days against the actual 70-odd days.

All original equipment manufacturers will have to come down and offer schemes. These two were price cuts, but there will be major schemes and discounts coming in from manufacturers, Gulati said.

Dealers will have to liquidate this exact variant, which is more in the stock as dispatches were high up about 2% last month, according to him. If manufacturers do not take necessary steps to regulate the demand-supply mismatch, "dealers will choke and in turn it will affect the market," he said.

Meanwhile, Uttar Pradesh government on Tuesday decided to give a 100% waiver on the registration fee of strong hybrid cars and plug-in hybrid cars with immediate effect. This makes M&M’s SUVs costlier than rival offerings in Maruti Suzuki Grand Vitara and Toyota Hyryder.

Shares of Mahindra & Mahindra Ltd. fell as much as 6.46% intraday to Rs 2,746.65 apiece on the NSE. While, Tata Motors Ltd.'s stock fell as much as 0.85% during the day to Rs 1,006.30 apiece.