Automobile dealer revenue growth to slow to 7-9% this fiscal year: Crisil Ratings

Crisil Ratings has projected a slowdown in automobile dealer revenue growth to 7-9% this fiscal year, down from a healthy 14% last year. The credit rating agency attributes this decline to slower volume growth and modest price hikes by automakers.

Recent months have seen a slowdown in sales volume growth, prompting manufacturers and dealers to increase discounts and offers. While this primarily affects manufacturers, car dealership profitability is expected to drop to around 3%, slightly below the three-year average of 3.5%.

The analysis by Crisil Ratings, which covered 110 automobile dealerships across passenger vehicles (PV), two-wheelers (2W), and commercial vehicles (CV), indicates that high inventory levels will continue to pressure working capital debt for dealers. By the end of last year, passenger car dealers’ inventory levels had reached 50-55 days, exceeding normal levels. With sales volume growing at a slower rate of 4% in the first four months of 2024-25, dealer inventory is expected to increase by an additional 15 days.

Although inventory levels may decrease slightly in the second half of the fiscal year due to discounts and promotions during the festive season, they are expected to remain above normal levels. Crisil anticipates that price increases will stay around 1-2% this year, down from 4-5% last year, as dealers continue to offer substantial discounts to manage inventory levels.