‘If GST does not cover our stock (inventory), we will go bust!’

by Autocar Pro News Desk , 16 Nov 2016


John K Paul is the first automobile dealer from Kerala to have been elected as president of FADA. He was unanimously elected as the president at the 281st council meeting on September 23 in Kochi. He speaks to Autocar Professional after assuming his new role. Excerpts:

What will be the key focus areas in your new role as the president of FADA?

I took charge at a council meeting in Kochi. We were following this theme of uniting for disrupting times at the event. My job for the next two years will revolve around the trend of disruption. This is so because, I believe, at least for the next four-five years there will be a lot of disruption in our industry.

If you take this in the context of marketing, there are so many new aggregators. If you look at it in the context of sales, there is Zmazon, PayTm, Flipkart, Snapdeal and other platforms. What they do, what they may or may not do and how the manufacturers engage with them is yet to be seen.

There is GST coming in the next one year. We still don’t know how it will impact the auto industry. If it does not cover our stock (inventory), we will go bust!

But probably that will not happen. We expect that the manufacturer, through the government, may try and cover us. But again that’s a disruption because for the next one year you will have a lot of problems.

This is a big challenge, and is seen as a grey area.

Yes. See because all these years when excise changed, it would change for about 2-4 percent on the upper side. So most manufacturers in some form or the other would try to cover it. But here the chances are that it will be around 20 percent.

If it’s going to be 18-20 percent, then no manufacturer or dealer can cover it. So there has to be some way where we get compensated or we pay less. That is only one part of it, now the GST impact on the used car is going to be even bigger.

Why do you say that?

In the sense that in a new car, at least the manufacturer knows when it will be billed. So you can say when it is freshly billed, this is how it is. In a used car, one – the government has to agree to the price that we have bought it for, and its price after taking depreciation into account. And, then, they have to give us a GST that is compensatory.

Another thing, especially, in today’s age and time, everybody knows that GST is going to come and that definitely there will be a price drop. So they won’t wait till March 31 not to buy, they will stop buying from now.

People who can wait for six months will do so. For example, on a Rs 400,000 passenger car, you lose Rs 80,000, which is not a small amount.

Do you see some significant changes in the retail practices in this industry?

Disruption on that front will be in the form of virtual showrooms. Such initiations can now challenge the bigger dealers.

Let’s take the virtual showroom for example. Indian customers will do research online, they will compare but they still want to have that touch and feel before signing the cheque. So do you think that will continue?

I’ll tell you, it’s not just in India. Even in the USA today, for the final purchase 80 percent of women and 65- 66 percent of men still want to go back to the showroom for the final purchase. They would have a lot of other things like insurance and they have gone a step further than what is happening in India.

They do their insurance. Whatever has to be done legally, they would do it online. However, the touch-and-feel of the car is still preferred by the buyers.

I don’t think anybody in India would opt for booking, ordering and tracing a car and wait till that is delivered at home without even going at the retail showroom for one look.

The investments that the dealer principles have had to do in businesses are on the rise. Your comments?

I will tell you something, if you look at the last six-seven years,the costs have gone through the roof. For example in service, there is no increase in price. You have a particular hourly charge, it’s once in many years that hourly charge is changed.

However, every year you have to give an increment to your service people. So service costs, the costs are rising faster than the income. Many years ago, it was not so bad, but now making money from service is becoming nearly impossible.

So if manufacturers cannot give that money to dealers from sales by increasing their margins, at some point of time, in fact even now, day-by-day it is becoming more difficult to get a dealer for any place.

Maybe Maruti Suzuki or one or two other manufacturers may be able to do it. But most of the manufacturers are struggling to get dealers, thanks to these factors.

And there are some manufacturers who have already started increasing margins because their sales volumes have been low. But as their sales volumes increase, they don’t lower the margin. So it’s only a question of time when other manufacturers also wake up and start slowly increasing their margins. 

Tags: FADA, GST

 

comments powered by Disqus