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Hike in registration fee and road taxes a cause of worry for auto dealerships, says expert

Updated : July 30, 2019 12:44 PM IST

State Bank of India (SBI) has tightened lending terms for auto dealerships in an attempt to cut exposure to the troubled sector, as per media reports. Nikunj Sanghi, chairman of the Automotive Skill Development Council and Kapil Singh of Nomura, shared their views on the same.

“Bank facilities are normally given for a year and they come up for renewal every year. The new norms or the tightening, which is happening will definitely happen when the limit comes up for renewal and when the limit comes up for renewal is the time where additional collateral will need to be given by dealers and I think the advisory issued by SBI is absolutely clear that a minimum of 25 percent collateral is required and if necessary, they will go up to even 50 percent of collateral. So it is an ongoing process and I think it will unfold as limits come up for renewal with the bank,” said Sanghi.

In terms of registration fees and the road tax going up, Sanghi added, “Both are definitely huge negatives because the cost of acquisition of any vehicle is going up and apparently both the centre and the state government are looking at the auto industry to fill up to the revenue gaps that they have. Once the proposed hike in registration fee comes into place, I guess it will have a huge impact. It is a multifold increase in the registration fee. Together with that are states hiking their road tax. So the cost of acquisition is going up.”

According to him, in an already negative market, these signals are not very positive signals and a cause of worry for all dealerships.

“Unless there is no further build-up of inventory, I am sure the festival season will be a huge bottleneck, which will clear up the existing inventory levels at dealerships. I think original equipment manufacturers (OEMs) will need to be careful about building up further inventory in the two months that precede the festival season,” Sanghi added.

On electric vehicles (EVs), Sanghi said, “The direction of the government is very positive. It has also given a very clear indication of where the government wants to move. The goods and services tax (GST) cut will make EVs cheaper and therefore will definitely trigger some kind of demand. I don’t think there is any dispute that the future is electric.”

“Things have been slow for some time. Earlier we were expecting that post-elections things will improve, then we thought post-budget, things will improve but so far there are no signs of improvement. In fact, when we were talking to dealers in July, many of them mentioned that things have been worse than June. So it might take longer for this inventory to clear out, we are still hoping that festive season will see an improvement in demand and that should help in clearing out the inventory,” said Singh.

“We have only Mahindra and Mahindra (M&M) as a buy amongst the OEMs because the valuations are very cheap over there and within the auto component space, Minda Industries is also one of the companies that we like. However, other than that, most of the portfolio is having a neutral to negative view,” Singh added.
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