New challenges bring new opportunities. The current crisis stemming from the Coronavirus outbreak has posed a set of new challenges. The lockdown has already led to the worst ever monthly sales in the history of India Auto Inc and the industry is now anxiously looking into the measures to help sustain automobile dealers once the lockdown is removed. The dealer community is not just looking to survive this difficultt period but is also looking at a possible stimulus from the government and OEMs to rev up sales and eventually revive the auto industry.
As one of the four panellists in Autocar Professional's webinar on 'Rising to a Challenge: Business in the mist of a pandemic', held on April 11, Ashish Kale, president of FADA (Federation of Automobile Dealers Associations), opened his address with the fact that the lockdown due to Covid-19 is an unprecedented shock for the entire industry, especially after 18 months of slowdown.
Kale said, “It is now a question of survival for the dealer community. We are operating on a very thin margin and high cost structures, so it is a question of survival whenever the lockdown is lifted. Until the next instructions, the dealer community is following the lockdown protocol. We would be scaling up operations as soon as the lockdown opens up as most of the manpower at many of the dealer’s facilities are from local areas.”
Survival of the fittest
Commenting on FADA’s strategy for survival, he said, “FADA will be working on three fronts to ensure that the dealers would be able to survive during this difficult time. First, we would look up to the government for immediate support to the dealers in the country. Salaries for March have been done, but the month of April is going to be pretty tough. We would definitely like to retain the entire workforce that we had after the lockdown is lifted. As this is a pandemic, we are expecting provisions for salaries through the ESI. We are expecting salary reimbursements under the ESI scheme which would take a huge load off dealers. The government has already announced PF contributions for MSMEs with up to 100 employees and the dealer structure is such that most of us cannot operate with less than 100 numbers. Most of our dealerships stand outside that limit. So we would be requesting for a higher limit on that and waiver of 90 percent of the loss for the dealerships specifically looking at the structures of our businesses.”
Furthermore, Kale said, “We have also been advocating to the government to consider our service setups under all the qualifications that is required for the MSMEs but we are still not covered under MSME category. So that is another demand that we would be taking up so that the benefits that would be extended to the MSMEs would reach our dealerships also.”
The FADA president revealed that the cash flow currently is zero for the auto dealerships albeit the bulk of majority of the dealers’ costs are fixed costs. FADA is appealing to the government to reset the clock of the lockdown period so that the cost of interest does not burden dealers.
Operation Covid-19: Learnings and strategies
Kale said the growth or the lack of growth projections made by SIAM for the coming year "are quite scary" and make the future look even more grim for automobile dealers. He urged his counterparts from SIAM and ACMA to join hands and appeal to the government for certain unprecedented measures to revive the auto industry including a GST cut and an incentive- based scrappage policy.
Kale said the auto industry, which is also seen as a key sentiment booster, be considered as one of the key enablers for bringing back the nation to normalcy. It's not just about vehicles being sold but the entire value ecosystem including insurance, finance, component manufacturers and all the other related stakeholders.
The FADA president highlighted a 'Cash For Clunkers' scheme implemented in the USA in 2008-09 and a Car Allowance Rebate System (CARS) that could be implemented in India. CARS is a $3 billion US federal scrappage program intended to provide economic incentives to US residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle. It is a direct benefit for the consumer for a limited period when the focus would be more on the essentials rather than discretionary purchases. Depreciation which was offered last year during the slowdown period is being recommended for this financial year as well. Kale is keen to see individual buyers enjoy certain amounts of benefits in the form of their income tax returns.
Kale urged urgent action from banks and NBFCs to aggressively promote auto loans. He said these organisations need to support the dealer community and their working capital needs as one of the high priorities for a one-year period. Also, if the auto sector is set as a high priority sector, then the banks would be able to allocate more amount of resources for the sector.
Addressing the biggest elephant in the room for dealers -- slackening consumer demand -- he said SIAM and FADA will have to work together to bring dealership costs down. He expressed his gratitude to some OEMs who have been prompt with their payments and helped ensure dealers could pay March salaries on time. For further structural support, especially for the low sustenance dealers, FADA is ready to work with the OEMs so that workforce could be retained after the lockdown period. FADA, a unified national body represents 15,000 automotive dealer principals; the auto dealer segment directly and indirectly employs around 40 lakh people.
Kale concluded by saying, "Auto sales have a multiplier effect and are also a sentiment booster.With the government's support, we can overcome this challenge."
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