Cautious Optimism

Dear friends,

It is comforting to note that the passenger vehicle sales have witnessed a little uptick in May 2014 after being in negative terrain for a long time. The commercial vehicles continue to struggle, though.

It is too early to say if the modest upswing in passenger vehicle sales seen in May has anything to do with the improvement in sentiment upon the formation of a stable Government at the Centre after the general elections. It will be equally hazardous to guess whether the sales performance of May is any guide or indicator that a firm, sustainable recovery is round the corner.

Automobile market in India has been going through a slump for over two years due largely to the challenging economic environment, inflation, high interest rates, volatile fuel prices and resultant downbeat sentiment. While there have been straws in the wind, inspiring confidence from time to time, all such hopes have turned out to be a flash in the pan.

The automobile dealers have been the worst hit by the prolonged slowdown. While manufacturers can take recourse to the cost-cutting measures during downturn, the automobile dealers do not have leeway to play around with their cost structure. In a sluggish market scenario, the automobile dealers have to contend with the double whammy. The discounts and freebies become the order of the day on one hand, thereby squeezing their margins; the dealerships’ costs go up on the other, as more marketing efforts are required to clear the stocks built up at the dealerships. 

Not surprisingly, J D Power Asia Pacific has come up with startling revelations in its latest survey of automobile dealerships. According to the findings, only 42% of the automobile dealers expect to make profit during the year 2013-14. The situation is worse in the case of automobile dealers in six largest cities, where only 31% of the dealers estimate that they would be profitable during the year.  What is worrisome is that despite somewhat comforting sales numbers in May, there are no clear signs that the auto market is on a road to sustained recovery. Headwinds in the form of lacklustre factory output numbers, tardy pace of infrastructure development, stubborn inflation, high interest rates and fluctuating fuel prices persist. That IIP grew by 3.4% in April is heartening, though.

It is gratifying to note some of the OEMs supporting their dealers through special measures during the tough time. As a result, their dealers have been able to cope with the downturn without much pain. We expect that other OEMs will come up with similar steps to keep the automobile dealers afloat.

We, in auto sector, are pinning our hopes on the new Government at the Centre and expect that the Government will come up with measures at the earliest to boost economic activity, business & consumer confidence and demand.

We, in FADA Council, observed that some of the OEMs have adopted healthy practices and policies, which are not just dealer friendly but seek to promote the sustained growth & development of auto market. It was felt that a study needed to be done in this regard. Accordingly, FADA commissioned Frost & Sullivan to conduct a study on Competitive Benchmarking of OEM Practices of Passenger Vehicles Retail in India.

The objective was to identify and bring forth the best practices of various passenger vehicle players in India so that these best practices become the industry standards.

I am happy to inform that the study has been completed and the report was presented at the media conference organized by FADA on 4th June 2014 at Mumbai. 

The study revealing some of the best practices prevalent in the industry, has also come up with a number of takeaways for OEMs, my fellow dealers and FADA. Four major areas where the OEMs can step in to support their dealers to ensure their business viability in the long run, as  brought forth by the study, are: (i) Well Managed Vehicle Inventory; (ii) Constant Monitoring of Dealer Business Health; (iii) Carefully Monitored Network Expansion; and (iv) Viability support during business slowdown. 

The study recommends that FADA can play a role in facilitating transfer of a dealership along with its assets to another member, as a going concern, in case a member wants to exit the business. The study also calls for collaboration among the automobile dealers in creating common facilities in order to cut costs. With OEMs insisting on exclusive facilities for their brand, I wonder how far this is possible. We shall have to deep-delve into some of the suggestions to translate them into action.

I am hopeful that the OEMs will favourably consider and adopt recommendations contained in the study in the interest of all-round growth of auto sector. 

The last one month saw a lot of action within FADA. In addition to the media conference to release the study, a meeting of FADA Council was held on 4th June 2014 in Mumbai. You will be delighted to know that FADA has signed an MoU with CARE for providing credit rating services to FADA members at 20% discount. It is a non-binding arrangement and the members have option to approach any other credit rating agency, if they so wish.

FADA council also decided to give further impetus to the FADA Academy Training & Development Programme. You will see training programmes being organized under the aegis of FADA Academy at more frequent intervals across the country. In view of the fast changing dynamics of auto retail, the importance of regular training & development programmes cannot be overemphasized.

FADA council has further decided to form a small group of automobile dealers, who will share data & practices to identify benchmarks in various areas of dealership management. A professional consultant will coordinate the activities of this Group, collate the data and come up with  benchmarks.

Council also decided to organize a Two-Wheeler Summit with a theme and focus on issues relevant to two-wheeler segment, sometime in September.

As you are aware, FADA had decided to confer on Mr Ratan Tata the Life Time Achievement Award on behalf of the automobile dealer fraternity for his phenomenal contribution to the growth & development of auto industry in India. Although the announcement was made and the citation in his honour read at the Auto Summit 2014, the award could not be presented to him in person due to his unavailability at that time. The meeting at Mumbai provided an opportunity for FADA to honour Mr Ratan Tata with the Life Time Achievement Award. A 12-member team of FADA presented the award to Mr Tata in his office on 5th June 2014. Needless to mention, Mr Tata is an an industry leader with impeccable credentials and remains a source of inspiration for all of us in auto sector.

A 3-member team of FADA visited Italy to participate at Automotive Dealer Day – a European B2B event – held from 20th to 22nd May 2014 in Verona. The objective of the visit was to understand the scenario and developments in automotive business across the globe and to deepen relations with auto retail organizations in other countries. A report in this regard is published elsewhere in this issue.

FADA has submitted a memorandum to the new Union Finance Minister for the Union Budget 2014, reiterating its suggestions for rationalization of taxes on motor vehicles and introduction of GST at the earliest. We hope that the stimulus by way of reduction in excise duty announced in the interim Budget will be retained. We further hope that the Government will come up with special measures such as higher rates of depreciation in the case of commercial vehicles & passenger vehicles for stimulating demand and modernization of transport fleet in the country.

Please feel free to send your suggestions and inputs, if any.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

Tab content 1
Tab content 2
Copyright © 2017 FADA India. All Rights Reserved.
Joomla! is Free Software released under the GNU General Public License.
Federation of Automobile Dealers Associations(FADA)
Website by Carazoo