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Automakers get into rescue mission as more than 300 dealers shut shop in FY20

Maruti, Tata Motors, Honda Motorcycle offer direct loans, higher margins, and longer credit period to help dealers tide over Coronavirus-induced crisis. Zero retail sales, lower margins and new dealerships have forced many dealers to down shutters.

August 27, 2020 / 05:23 PM IST

Car and bike manufacturers like Maruti Suzuki, Tata Motors, and Honda Motorcycle and Scooter India (HMSI) are playing a saviour’s role to prevent auto dealers from becoming extinct.

The going has been tough for the dealers for quite some time now.

In April 2020, retail sales fell to zero for the first time after the country-wide lockdown due to COVID-19. The community was already battered, and FY20 turned out to be one of their worst years, with volumes declining 18 percent to 21.54 million units, compared to FY19.

So much so that during FY20, more than 300 dealerships downed shutters permanently.

Enter the big brothers

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Their hardship was not going unnoticed. Automotive companies, which were aware of the situation, stepped in and averted a complete meltdown.

Direct financial aid like loans, longer credit period, higher margins, interest subsidy and help in securing inventory loans from banks and financial institutions were some of the measures taken by automotive companies during the past few months.

Speaking to analysts, Ajay Seth, Chief Financial Officer, Maruti Suzuki India, said: “The sudden halt of business had put significant pressure on cash flow for suppliers and dealers. Maruti provided them with cash flow support to ensure that they are able to pay salaries and meet other obligations.”

In fact, even before the pandemic caused widespread disruption in the market, companies such as Maruti and Tata Motors were keeping a tab on the financial health of dealers even on a monthly basis.

“We are keeping a very close watch on all our dealerships ever since the pandemic struck. We have a concept of a balanced scorecard of a dealer, where we keep monitoring his performance on all parameters, including financials. We have released advances much earlier, ensuring they have adequate funds. We’ve also given them interest subsidy”, added Seth.

Responding to shareholders at a recent annual general meeting, N Chandrasekaran, Chairman, Tata Motors, had said: “Tata Motors is very actively engaged with its dealers. The dealer inventory is at an all-time low. Fixed cost loans have been provided and margin adjustment has been made”.

HMSI, the country’s second-largest two-wheeler maker, made advance payments of incentives and reimbursements as part of the Rs 1,700 crore package to help its dealers, suppliers and service providers.

Not only have bike and car manufacturers increased their prices since July, they have also raised dealer margins. Sources say some automakers have increased margins in recent weeks after the lifting of the lockdown and reopening of showrooms.

Dealers down shutters

More than 300 dealerships downed shutters permanently in FY20 itself. Of the 370 dealerships which closed in the last three years, about 14 belonged to the Maruti Suzuki family.

The urge to push volumes higher had led to ‘dumping’ of stocks on the dealers by manufacturers for most part of the last year. Inventory days (number of days before the stock is sold) were 1-2 weeks above normal.

Tata Motors was one of the companies which claimed to have achieved a month-on-month reduction in inventory to reduce selling pressure on dealers.

Margin pressure adds to woes

Margin earned from selling vehicles has hit a new low, thanks to the steady addition of dealerships every year. Dealers make 2-3 percent margin on each vehicle sold. It used to be around 5 percent a few years ago, as per estimates.

The Federation of Automobile Dealers Association (FADA) said that retail sales, as of August, were still at 60-70 percent levels YoY, despite the low base of last year.

“The full year outlook continues to remain negative with a projected de-growth in retail sales in the range of 15-35 percent across various segments,” said FADA, which represents over 15,000 dealers having 26,500 dealerships, employing around 4 million people.

Wholesale passenger vehicle volumes in July 2020 stood at 1,82,779 units, against 1,90,115 units in the same month last year -- a drop of 4 percent.

Two-wheeler volumes in July 2020 were 15 percent lower at 1.28 million units against 1.51 million units in the year-ago period, as per Society of Indian Automobile Manufacturers (SIAM) data.
Swaraj Baggonkar
first published: Aug 27, 2020 09:54 am
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