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Dealerships complain of low margins, say auto companies must do more for them

Dealerships complain of low margins, say auto companies must do more for them

Dealerships complain of low margins, say auto companies must do more for them
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By Parikshit Luthra  Jun 11, 2020 9:59:18 PM IST (Updated)

With vehicle registrations declining an unprecedented 89 percent decline in May, the Federation of Automobile Dealers Assocations (FADA) has once again urged vehicle manufacturers to review dealer margins.

With vehicle registrations declining an unprecedented 89 percent decline in May, the Federation of Automobile Dealers Assocations (FADA) has once again urged vehicle manufacturers to review dealer margins.

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In an interview with CNBC-TV18, Ashish Kale, the president of the automobile dealers' body, said that dealers globally have at least two-three times the profit margins Indian dealers make, and there was a need to urgently correct them.
"There is a 50 percent fall in sales volume. We cannot compensate such a loss only by cost-cutting. Therefore, we have recommended an increase in dealer margin to at least 7 percent as an immediate measure. India is the lowest in the global order when it comes to dealer margins, as we operate between 3.5 to 5 percent margins compared to 7-14 percent globally,” he said.
Insiders say dealerships generally have lower margins because India is a price-conscious market and incidence of taxation on cars is higher, on average. The dealership industry is also fragmented in India, leading to lower bargaining power. Auto companies, however, say dealers get to make money through value-added services.
But with the Indian automobile industry registering an 18 percent sales decline in FY20, and the Society of Indian Automobile Manufacturers (SIAM) predicting another 22-35 percent de-growth in FY21, dealers are worried.
India’s automobile dealerships employ 25 lakh people directly and at least 15 lakh people indirectly.
All dealerships have already initiated cost-cutting measures and are reviewing the status of dealerships with low financial viability.
The FADA President did not rule out job cuts but said that dealerships would take a call on reducing manpower if demand does not pick up by July.
FADA has also requested automakers to align production with overall demand, as the interest on inventory funding can create financial pressure during a slowdown.
The 89 percent fall in registrations in May looks worse after accounting for the fact that most of the vehicles were sold before the lockdown.
“There were very few fresh purchases in May," Kale said, in a month when the country had started opening up in parts. The first ten days of June saw very weak customer sentiment, he added.
"Customer confidence is yet to come back. There are fears of another lockdown or community spread and we expect a huge de-growth even in June,” said Ashish Kale.
However, there is a silvering lining.
FADA believes that there is going to be greater demand for personal mobility in the coming months.
While customer inquiries have gone up, the next few weeks will reveal if these inquiries actually translate into purchases, said Kale.
Along with industry bodies like SIAM and ACMA, the FADA has also been requesting the government for a demand stimulus. Further, they say that dealerships should be included in the MSME Act.
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