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Auto dealers struggling to pay salaries will rationalize manpower, cut pay to keep costs low

Auto dealers struggling to pay salaries will rationalize manpower, cut pay to keep costs low

Auto dealers struggling to pay salaries will rationalize manpower, cut pay to keep costs low
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By Alisha Sachdev  May 8, 2020 5:28:07 PM IST (Updated)

Even though a few dealers are gradually opening up showrooms in green zones, the exercise is mostly oriented towards conducting maintenance and cleaning activities.

After remaining shut for nearly 2 months, auto dealers in the country are now faced with overdue salaries which they're struggling to pay amid heavy cash flow issues.

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Even though a few dealers are gradually opening up showrooms in green zones, the exercise is mostly oriented towards conducting maintenance and cleaning activities.
When the sector does open up, dealers will look to cut manpower costs as far fewer people will be required in showrooms in the face of less demand and social distancing requirements.
The focus for auto dealers at the moment is to pay salaries to staff when revenues have been zero for over 50 days, and the sector has made a pitch for immediate support from the government's Employee State Insurance Corp to disburse salaries.
Auto dealers will inevitably look towards reducing manpower costs by way of layoffs and salary correction at mid and senior levels. According to auto dealers that CNBC-TV18 spoke to, some have already decided to implement pay cuts of up to 50 percent across the board.
The maximum layoffs are likely to take place in the sales vertical, however, rationalization will take place across the industry.
According to the Federation of Automobile Dealers Association of India (FADA), there are over 25,000 dealer outlets in the country that directly employ a staff of 2.5 million.
Auto dealers had already undertaken a round of measures to reduce fixed costs and overheads in the July-August period last year, when the sector was witnessing a deep decline in demand for new vehicles and the slowdown cycle was at its worst.
"Auto dealers' revenue is directly linked to the productivity of its manpower, and going ahead we will have to determine how much manpower we will need depending on the scale of our business and how the market responds", a New-Delhi based auto dealer told CNBC-TV18.
"FADA is advising dealers to conduct a cost-benefit analysis before they open showrooms, as revenues will be zero for some time when they open the showroom", Ashish Kale, President, FADA, told CNBC-TV18.
"One has to think whether the electricity bills, the other costs will be worth it when there is no customer at the showroom", a dealer CNBC-TV18 spoke to said.
Bringing staff to showrooms will also be a challenge as public transport is still not allowed to run in orange and red zones, and staff residing in containment zones will also face difficulty reporting to work.
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