Passenger vehicle retail sales in India witnessed a 10% on-year jump in July driven by new model launches and enhanced discounts, industry body FADA said on August 5.

Total passenger vehicle retail sales rose to 3,20,129 units in July, as compared to 2,90,564 units in July 2023.

"Dealers reported benefits from good product availability, attractive schemes, and a wider range of products," the Federation of Automobile Dealers Associations (FADA) Vice President C.S. Vigneshwar said in a statement.

Heavy rains, low consumer sentiment, and intense competition posed challenges but dealers managed to sustain sales through strong promotions and incremental discounts, he added.

Mr. Vigneshwar, however, noted that the growth is accompanied by high inventory levels which has surged to a historic high of 67-72 days, equating to ₹73,000 crores worth of stock.

"This poses a substantial risk for dealer sustainability, necessitating extreme caution. FADA urges PV original equipment manufacturers (OEMs) to be vigilant about potential dealer failures due to these high inventory levels," he stated.

It is also crucial for the Reserve Bank of India to mandate financial institutions to implement stringent checks before releasing inventory funding, preferably requiring dealer consent or collaterals to prevent the escalation of NPAs, he added.

Two-wheeler retail sales last month stood at 14,43,463 units, an increase of 17% over 12,31,930 units in July 2023.

The segment experienced notable growth due to a thriving rural economy, positive monsoon effects, and the government's support programs enhancing rural incomes, Vigneshwar oted.

"The introduction of new products and better stock availability also contributed significantly, despite market slowdowns in certain regions, excessive rains, and increased competition," he added.

Commercial vehicle retail sales grew 7% year-on-year to 80,057 units last month.

"Positive factors included growth in the construction and mining sectors, while challenges such as continuous rainfall, negative rural market sentiment, poor finance availability, and high vehicle prices were also noted," Vigneshwar said.

Tractor sales declined 12% year-on-year to 79,970 units in July.

FADA, which collated vehicle registration data from 1,568 out of 1,645 RTOs across the country, noted that the near-term outlook across the auto retail segments shows a blend of optimism and caution.

Two-wheeler sales are expected to be buoyed by factors such as a growing rural economy, positive monsoon impacts and the introduction of new products. The festive season beginning after the Aadi festival and favourable agricultural conditions are also likely to contribute to increased sales.

However, heavy rainfall, ongoing agricultural activities and inconsistent monsoon patterns may dampen demand in certain areas. FADA noted that the PV segment could see mixed results in the near-term.

While the festive season, attractive schemes and good monsoon are expected to boost sales, concerns over low consumer sentiment, heavy rainfall and a lack of new product launches persist, it said.

High inventory levels pose a significant risk and it is crucial for PV OEMs to avoid further increases in stock to prevent financial strain on dealers, FADA said.

The CV segment faces a modest outlook, with positive factors including improved market reach and the festive season, tempered by challenges such as bad freight rates and ongoing rainfall, it added.