Bumpy ride for auto sector: Infra hurdles for dealers

Even as automakers try and combat the ongoing slowdown in sales, their dealers-the most crucial aspect of the chain - are facing their own set of problems. That threatens their long-term viability. CNBC-TV18's Anshu Sharma and Elan Dutta report.

Nikunj Sanghi, president of FADA says, "We have some major issues happening. One of them is a very high cost of infrastructure. Real estate prices have hit the roof. It is becoming impossible to start a 3S facility in a location which would be suitable for an automobile dealership. And with those kinds of cost pressures on infrastructure dealer viability is of course under distress."

Given that sales, service and spares are the backbone of the automobile sector, the problems of the dealers could further worsen the ongoing slowdown in the sector, especially as the interest rate scenario is not likely to turn positive for auto sales anytime soon

Sanghi says, "Interest rates have gone up so have our inventory costs and due to that our margins are impacted. Due to the slowdown, there are new customer schemes and discounts are also impacting our margins."

Going forward, the dealers feel that some specific steps need to be taken to provide support to the sector. These can include creating new automobile zones that will bring together part makers, dealers and even customers.