FADA warns of stock build-up, seeks inventory discipline by automakers to protect dealer viability

Since automakers are currently not billing dealers with new inventory, any sales made by dealers until September 22 will reduce the cess balance.

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India’s automobile dealers on Tuesday flagged the build-up of unsold stock as a critical threat to their financial health, warning that “dead inventory, thin margins and costly training” are undermining business viability across segments.Inventory indiscipline is one of the most pressing challenges for the sector, Federation of Automobile Dealers Associations (FADA) president CS Vigneshwar said Wednesday, addressing the 7th Auto Retail Conclave in New Delhi. “Dealer viability equals industry viability. Without viable dealerships, there can be no sustained customer satisfaction. That is why we ask OEMs (automakers) for inventory discipline aligned to transit days, not excessive stocking,” he said.According to FADA’s 2025 Dealer Satisfaction Survey, product quality in the sector is strong, but business viability and policy support are weak with excess inventory emerging as one of the biggest pain points.

High stock levels are eroding margins at a time when dealers are also coping with the costs of the transition to electric mobility and digitalisation, he said.

While welcoming the broader simplification of indirect taxes under GST 2.0, he cautioned that the withdrawal of the compensation cess from September 22 has left dealers exposed.

Dealers are concerned about the cess they have already paid on vehicles that automakers have dispatched from factories or arrived at the dealerships, but will be sold only after September 22, when the levy will be scrapped as per a government announcement earlier this month.

“Thousands of crores of accumulated cess balances will lapse if not addressed. Dealers already paid this cess upfront to OEMs. If it becomes a dead loss, it will hurt working capital and festive sales momentum,” he said, urging automakers and the government to provide a fair transitional mechanism.

The cess figure shared by FADA represents the estimated ledger balance of cess with the government, he said. This explains why the cess balance was only ₹2,500 crore, despite the large inventory of vehicles with a high cess component.

Since automakers are currently not billing dealers with new inventory, any sales made by dealers until September 22 will reduce the cess balance.Former FADA president Manish Singhania explained: “My cess balance is only ₹35 lakhs today, even though I sell Mahindra vehicles, which typically carry a high cess component. This is why OEMs are introducing promotional schemes — to help dealers clear their cess balances before 22nd September.”

However, there is a challenge in clearing inventory due to the ongoing inauspicious Shradh period, during which customers, particularly in North and East India, tend to avoid taking deliveries, he said.

A Maruti Suzuki dealer said automakers are supporting dealers by matching post-September 22 prices and offering higher margins to clear the cess balance. Still, he echoed concerns about weak demand during the Shradh period.

Some companies have continued production, even though they will not be billing dealers until September 22. These companies are storing additional inventory at their factories, in existing yards and even leasing new stockyards near their manufacturing units. This is being done to ensure sufficient availability of stock during the upcoming festive season, when customer demand is expected to pick up.

Dealers also pointed out that their margins are under pressure as customers shop around for the highest discounts. Automakers need to enforce discipline on discounting practices to ensure healthier dealership operations, they said.

Vigneshwar pressed for a stronger Auto Dealers Protection Act to ensure fairness in OEM–dealer agreements, faster approvals and simplified compliances, as well as incentives to support dealer investments in charging infrastructure, training and the resale ecosystem.