New Innings, Renewed Hopes

Dear friends,

I take this opportunity to express my gratitude and sincere thanks to FADA Council and you all for placing your confidence in me by electing me as the President of this august body. 

I feel honoured to be elected as President of this prestigious organization, especially at this point of time…when FADA is celebrating 50 years of service. The actions initiated 50 years ago have to be applauded for their sincerity and meaningfulness, which made FADA what it is today. 

I believe that the mission we set for ourselves today for FADA is what is going to take us to the century mark. As a team, we are aware, we are at that critical juncture where our actions will have an impact on the future of FADA . With the blessing and support of each of our members, we are confident that, we can effectively work towards the mission.

FADA has come a long way since its inception. FADA has come to be regarded as a prestigious organization and its views and inputs are given due importance. However, I do realize that we need to increase our membership base and work much harder to ensure that the auto retail business gets recognition appropriate to its enormous contribution in terms of investment, revenue to the Central & State exchequers, employment generation and share in the country’s economic activity and GDP.

Needless to mention, a number of new initiatives and activities have been undertaken by FADA in the past few years, in particular. I intend to strengthen the activities already set in motion, especially the ongoing training & development programme under the aegis of FADA Academy.

Another item on the top of my agenda for the next year is to strengthen and step up interaction with the associations of automobile dealers at the city, State and regional levels so that they become a bridge between FADA and automobile dealers in every nook and corner of the country. My endeavour would be to organize as many regional meetings as possible. These regional meetings will not only enable us in FADA Council to interact with the local members, but will also help in identifying the issues at the local or State level and getting valuable inputs from various States for initiating appropriate action at the State and national levels.

I find that service tax apart, most of the issues facing the automobile dealer fraternity are localized and need to be addressed at the local or State level. I assure the regional associations that FADA will pitch in with its support by sharing the norms & practices prevailing in other States and the legal position settled by various judicial rulings & pronouncements.

I do appreciate that the viability is the key issue of concern to most of my fellow dealers, especially in the major cities where the real estate and manpower costs have risen astronomically and gone through the roof, while the sales margins have virtually remained static over the years. The fierce competition in the market, where discounts and freebies are the rule than an exception, coupled with an acute slowdown for over two years, have added to the woes of automobile dealerships. I assure my fellow dealers that this key issue will continue to receive our focused attention.

A study on Competitive Benchmarking of PVs Retail Practices of OEMs in India was conducted and completed by Frost & Sullivan on behalf of FADA. The study brought to the fore a wide divergence in practices of OEMs vis-à-vis their dealers. The study has also identified quite a few healthy practices of certain OEMs, which have acted as a cushion against the severe slowdown in the market. We will closely interact with all the OEMs to put this study to good use.

Considering that the Auto retail business in India is growing in all segments viz., passenger cars, two wheelers, and commercial vehicles, the need for individual focus is imperative. Accordingly, we intend to create verticals to focus on particular segments. The first will be the two-wheeler vertical. We believe that this will ensure the relevance of FADA to the two-wheeler dealers across the country. We propose to hold a two-wheeler dealer convention to address the specific needs & concerns of the two-wheeler dealer community.

As you are aware, FADA has completed 50 years, the organization having been formed in 1964. The celebration of Golden Jubilee of FADA is also simultaneously engaging our attention and very high on our agenda for the next one year. We propose to celebrate the Golden Jubilee in a grand manner by organizing a mega grand event sometime in the middle of March 2015.

I am happy to inform that the process for the 6th edition of Automotive Dealership Excellence Awards (ADEA 2014) has been set in motion. 

Instituted by FADA jointly with Auto Monitor magazine, Automotive Dealer Excellence Awards (ADEA) aim to recognize and reward my fellow dealers who excel in various areas of dealership management, community service and social work. Each successive edition has seen the growing interest and participation of my fellow dealers and industry. The awards presentation ceremony for the 6th edition of ADEA 2014 would be held in March 2015 in Mumbai. 

This year’s awards assume added importance, as the awards presentation function will coincide with the mega event being organized to celebrate Golden Jubilee Year of FADA. The Golden Jubilee Year Celebration event will be adorned by ‘Who is Who’ of Auto Industry and other bigwigs connected with Automotive Business. Therefore, I would request my fellow dealers to participate in the Automotive Dealership Excellence Awards (ADEA) by sending your nomination at the earliest and be part of this grand special occasion in March 2015. 

Adverting to auto market, it is a matter of some comfort that the things have been looking up of late, riding on the expectation from the new Government at the centre that has raised the hopes on the promise of bringing the slowing economy on a high-growth trajectory. Macroeconomic fundamentals are also improving, slowly though.

A heartening development is that the crude oil prices are witnessing free fall, the geo-political tensions in middle-east notwithstanding. The downward spiral of crude oil prices bring a huge relief to the Government in terms of its fiscal management, including its fiscal deficit and CAD, which created a mayhem in the country’s financial market in July–August last year. 

The icing on the cake is that we are going to see a stable rupee, benign fuel prices and softening of inflation in the near future. I am sanguine that the impending reduction in fuel prices will have positive impact on inflation, leading to reduction in interest rates that have also been responsible for dragging down the vehicle sales numbers.

I also wish to draw the attention of the industry to the devastating effect the cyclone Hudud had on the auto retail facilities of our dealer friends in the city of Vizag and the neighbouring areas. The sight is heart breaking. It is, however, gratifying to note that no human loss has been reported by the dealerships. I am in touch with the dealer friends to extend whatever support is required to ensure a quick recovery.

By the time, this issue reaches you, I am sure, you must have celebrated the great festival of Diwali with usual gusto, fun and frolic associated with the festival. I hope that auto market will claw back to the positive growth momentum riding on the festive season and upbeat sentiment prevailing currently.

I would count on your inputs and suggestions. Please feel free to send your views.

With best wishes,

Yours sincerely,

 

K V S Prakash Rao

 

 

 

Light at the End of Long Tunnel?

Dear friends,

I shall be completing my second term in the office of President of this august organization shortly. It is time that we take a stock of the developments during the last one year.

When I started my second innings as President on 6th September 2013, the scenario was that of doom and gloom. The auto market was passing through one of the worst recessions it has ever witnessed. There was no sign of things looking up anytime soon. 

The advent of FY 2014-15 and the formation of a stable Government at the Centre brought in its wake a ray of hope for the auto market. Indeed, there have been tell-tale signs of recovery for the last few months. However, we remain guarded in our optimism.  

One thing is for certain that the sentiment has improved. There are quite a few positive developments in the recent months, which are encouraging.

India’s GDP in Q1 of FY’15 grew better than expected at 5.7% that is the highest in the last two years and a huge plus in the context of 4.6% growth achieved in the previous two quarters. The good news is that this 5.7% growth in GDP in Q1 has been aided by a marked improvement in the performance of industrial sector.

With GDP growth in Q1 exceeding expectations, the global rating agencies have already started to sound bullish about the Indian economy. They remain cautious, though.

On the flipside, after the high of first quarter GDP data, the core sector numbers for July and Purchasing Managers' Index for Manufacturing (PMI) provide a sobering reality check that the recovery from the prolonged slump will not be easy as imagined. There are dampening signals, though not worrisome, emanating lately. The core sector index rose by a paltry 2.7% in July, down from 7.3% in June. The IIP growth in June 2014 slowed down to 3.4% from 5.0% recorded in May 2014. The HSBC India Manufacturing PMI for the month of August slowed to 52.4 as against a July's 17-month high of 53.0. Likewise, the HSBC India Services PMI for August 2014 was 50.6, the slowest in three months. Nevertheless, in spite of these blips, the mood remains positive.

Another heartening news is that crude oil prices in the international market are slowly falling despite geo-political tensions, mitigating worries on this account to a large extent. Diesel prices are currently, more or less, aligned with the market prices, giving respite to the Government from the burden of huge diesel subsidy and offering it a leeway to contain the fiscal deficit within the target of 4.1% of GDP for the current financial year as envisaged in the Union Budget.

Thirdly, the exports in the recent months have been clocking decent growth numbers. With imports slowing down, Current Account Deficit that stood at 1.7% in Q1 is manageable and is not a cause of much concern.

Fourthly, investment activity has gathered pace and reassured consumers have begun to spend again, indicating the worst slowdown in the last decade may finally be over. 

We, in auto market, have, for long, been clutching onto any straw in the wind. In the context of our none-too-happy experience in the last 30 months, the question keeps bugging whether the growth momentum seen in Q1 will be sustained. The stubborn inflation remains sticky and showing no sign of climbing down to the comfort level. As a result, the RBI was constrained to keep the interest rates unchanged in its last review of the Monetary Policy.

All said and done, the green shoots of recovery are getting deeper. We, therefore, hope to see a tangible revival in the fortunes of automotive market very soon, especially with the festive season drawing near.

Adverting to FADA’s activities, we had an action-packed year. The mother of all FADA’s events, i.e. Auto Summit 2014, hogged much of our attention during the year. The 8th Auto Summit – biennial convention of automobile dealers commencing from the year 2000 - was organized at a grand scale in February 2014. The Auto Summit was a stupendous success in terms of participation, stature of speakers and quality of deliberations. The two-day Summit saw impeccable arrangements and lively proceedings. I am grateful to the then Hon’ble Union Minister of Heavy Industries & PE, who made it convenient to inaugurate the Summit and to deliver his inaugural address. I also express my sincere thanks and gratitude to the industry leaders, including Dr Brijmohan Lall Munjal and Mr Vikram Kirloskar, President, SIAM, who spared their precious time to be with us at the Summit. My grateful thanks to the experts and captain of allied businesses for their august presence and enriching our experiences with their valuable thoughts and views. I am equally indebted to the sponsors but for whom it would not have been possible to mount the Auto Summit in such a spectacular way. I acknowledge with thanks the unstinted support extended by fellow council members and members of the Organising Committee, especially the support and leadership provided by Mr Vinay Nevatia, Mr Rakesh Jain and Mr Bharat Sanghvi, in successfully organizing the Auto Summit 2014.

I am happy to note that the study on ‘Competitive Benchmarking of OEM Practices for Passenger Vehicles Retail in India’ undertaken by Frost & Sullivan on behalf of FADA was completed during the year. The objective of the study was to indentify and bring forth good practices of various OEMs in relation to their dealers so that these practices become benchmarks for other OEMs to replicate. 

It is satisfying to note that the momentum and frequency of FADA Academy Program in association with Prashaste Training Academy was sustained, six training & development programmes being organized in different cities during the year. We intend to make this activity more broad-based and frequent in the coming years to equip my fellow dealers to stand up to the new paradigm that is changing at an alarmingly fast pace.

I am delighted to inform that the 5th edition of Automotive Dealership Excellence Awards – a joint initiative of FADA and Auto Monitor magazine – saw unprecedented response and participation, culminating in a gala awards presentation ceremony during the Auto Summit.

The year gone by saw FADA step up its interaction with the industry and the Government. I am thankful to the industry leaders and the Government for their appreciation of the viewpoint and concerns of automobile dealers.

It is also heartening to note that FADA continued to build and deepen relations with the auto retail organizations in other countries of the world.

What is the most fulfilling is that FADA responded proactively to the concerns and challenges facing auto retail business and spared no effort in addressing and resolving them to the extent possible.

I express my sincere thanks to my colleagues in the Council, who rose above their personal interests to lend their whole-hearted support in the larger interest of automobile dealer fraternity as a whole. In particular, I am grateful to my Vice President – Mr K V S Prakash Rao, who stood by me like a rock and extended his unflinching support and guidance. My grateful thanks to our Past Presidents for their guidance and wise counsel, which was always forthcoming.

Last but not the least, my heartfelt thanks to the members of automobile dealer community across the country. But for their support and cooperation, it would not have been possible for us to achieve what we did during the year.

Before signing off, I would like to place on record my acknowledgement and appreciation of the support provided by FADA Secretariat in discharge of my responsibility as the President.

I wish my successor All the Best.

Yours sincerely,

Mohan Himatsingka

A Positive Union Budget

Dear friends,

Much hyped and anticipated general Union Budget 2014 has been unveiled.

There were a lot of expectations of big bang policy announcements and reforms from the new Government that came to the power on the promise of rebooting the beleaguered economy and bringing back “Achhe Din” for the common man, hit hard by the sticky inflation and lack of job opportunities due to the slowing economy. Given the little leeway available to him and tight rope walk he had to do, the Finance Minister has presented a balanced Union Budget 2014-15.

We, in FADA, are thankful to the Hon’ble Union Finance Minister for having already extended the stimulus for auto sector by way of cut in excise duty on motor vehicles, which was announced in the Interim Budget for 3 months, up to 31st December 2014. 

FADA was expecting higher rates of depreciation especially in the case of commercial vehicles that have been reeling under acute slowdown for about 3 years now. Likewise, FADA was also expecting raise in the depreciation rates in the case of passenger vehicles in tune with the market reality and to spur demand. We, in FADA, hope that these suggestions would be incorporated before the Union Budget 2014 is finally passed.

However, in view of the precarious state of the Government’s finances and the need of balancing fiscal deficit and reviving the growth & investment climate, the Finance Minister has done a good job.

The Union Budget contains a number of proposals that will promote the growth of economy, including auto sector. Fiscal deficit target of 4.1 per cent for FY15 and 3.0 per cent in two years, increase in cap on FDI in insurance and defence, renewed thrust on infrastructure sector, particularly significant outlay for road infrastructure development, divestment of banks, and firm indication of GST rollout in near future are some of the positive highlights of the Budget.  Raising the income tax exemption limit in the case of individuals, deduction under section 80C and deduction for interest on housing loans in respect of self-occupied property by Rs. 50,000 each will leave more disposable income in the hands of individuals and catalyze demand for consumer durables including motor vehicles. Benefits extended to the real estate & construction, power and shipping sectors, as well as announcement of expeditious resolution of current impasse in mining sector, will, hopefully, revive the demand for commercial vehicles.

All said and done, the Union Budgets in the recent past have not been short on intent. What has left much to be desired is the implementation of the proposals in a time-bound manner without cost over-runs. Some of the projects announced in the Budget as far back as 2005 have not seen the light of the day till date, while a few other projects have been bogged down by environment clearances, land acquisition, litigation and intervention of the judiciary. Lack of clear direction and political will have been preventing those projects to take off.

I hope that the Government, enjoying decisive mandate, will pay equal attention to the implementation of the proposals contained in the Budget and translate outlays into outcome at the ground level, benefiting the intended beneficiaries to bring about inclusive growth.

The skeptics have been quick to point out that the Budget contains nothing new and is merely a rehash of the projects & schemes already introduced by the previous Government. They also point out that estimated 17.7% growth in revenue is not achievable in the backdrop of projected GDP growth of 5.4-5.9% during the year 2014-15 and the lurking fear of sub-normal monsoon. Therefore, there are apprehensions whether the fiscal deficit will be contained at 4.1%. Also, concerns have been raised that inflation may flare up again due to volatility in oil prices arising out of geo-political turmoil in the middle-east and expected sub-normal monsoon rains, which may, in turn, make all the calculations go haywire.

Definitely, managing fiscal deficit and inflation are two key concerns disturbing the Government, the economists, the business and the people alike. However, I am optimistic that the Government will come up with timely measures and weather the storm, if these major threats to the economy materialize. Regarding absence of any big bang reform or new bold policy initiative in the Union Budget, we must appreciate that the new Government has had less than 45 days in office to prepare the Budget. The Government should be given reasonable time for any radical directional change or big-ticket reform.

One thing is apparent, nonetheless, that the formation of the new Government at the Centre, with decisive mandate, has improved the sentiment in general, which is reflected in the automotive sales and the Sensex. Passenger vehicle market, which had been going through a sluggish spell for over two years, is, of late, witnessing uptick in sales slowly but steadily. However, commercial vehicles continue to face headwinds, suggesting that a firm economic recovery remains a distant dream. There is gainsaying that commercial vehicle sales are the barometer of the health of economy.

The good news is that industrial output as measured by IIP rose by 4.7% in May 2014. This is the highest growth in IIP in 19 months since October 2012 when the IIP grew by 8.4%. The icing on the cake is that it comes on the top of 3.4% rise in factory output recorded in April 2014. The May IIP numbers are music to our ears and inspire the hope that the economy and the industrial activity are steering back to the firm growth track. Though the May IIP data got push from the base effect, because of the last year’s weak numbers, the news is refreshing and will go a long way in improving the sentiment. The Government’s growth projections for the year 2014-15 are based on how the industrial recovery shapes up.

Another piece of good news is that the crude oil prices have started easing of late and the Rupee is showing a semblance of stability hovering in the 60-61 band against dollar. This development somewhat allays fears on account of ballooning petroleum subsidy. In nutshell, with pros outweighing cons, auto market can look forward to better days ahead.

Adverting to FADA’s activities, FADA Academy Training & Development programme, in association with Prashaste Training Academy, is on course. One more Effective Dealership Management Program was organized in June at Delhi. Another such programme is scheduled to held in Raipur on 25th & 26th July 2014. As you are aware, FADA has decided to organize a series of training & development programmes at regular intervals all over the country on rotational basis. In case any member is keen on organizing such programme in his/her city, state or region, the undersigned or FADA Secretariat can be contacted.

While welcoming the Union Budget 2014, FADA has submitted a Post-Budget Memorandum to the Union Finance Minister, reiterating the suggestions for higher rates of depreciation in respect of commercial vehicles and passenger vehicles.

We are also taking forward the proposal for institution of Transporters’ Excellence Awards and working further to make it a reality. FADA is in dialogue with the oil marketing companies and the users’ organizations in this regard. The idea, hopefully, will take a concrete shape shortly.

I shall welcome your inputs, ideas and suggestions, if any, to make FADA’s initiatives more meaningful to its constituents.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

Firm Recovery Still Eluding Auto Market

Dear Friends,

There have been signs of passenger vehicles witnessing a shade uptick in sales, piggybacking on the improved sentiment in the wake of formation of a stable, decisive Government at the Centre. However, commercial vehicles continue to reel under slowdown blues. It means that the economy is yet to gain traction, while there are tell-tale signs of improvement in confidence level. Macro-economic data emerging of late also supports the view that the worst is perhaps behind us.

In the clearest signal yet that economic activity is picking up, India’s core sectors grew at 7.3% in June 2014 – a 9-month high. This heartening news comes on the top of the positive growth momentum exhibited by the factory output in April and May 2014.

Activity in the eight core sectors - coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity – are considered as vital cog in economic growth. IIP growth at lower-than-expected 3.4% during June 2014 despite impressive performance of core sector, however, comes as a dampener. 

Another piece of good news is that the HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, rose to 53.0 in July, up from 51.5 in June, pointing to a solid improvement in business climate. The buoyancy in exports since April 2014 on the back of slowly improving world economy has also aided a surge in activity, pushing the manufacturing PMI to a 17-month high.

At the same time, striking a quick word of caution, the experts warn that input price pressures have risen sharply and supply side constraints still limit the pace with which growth can recover without stoking inflation.

Retail inflation in June touched its lowest mark at 7.31% since January 2012 and wholesale price-based index slid to four-month low of 5.43%. However, the scourge of inflation has, in no time, come back to haunt the country with CPI for the month of July 2014 shooting up to 7.96% mainly because of the food inflation. RBI, in its third bi-monthly monetary policy review for the year 2014-15, kept the key policy rates, namely, Repo Rate and CRR unchanged at 8.0% and 4.0%, citing inflation worries. Arguing against the lowering of key policy rates, RBI cautioned that the moderation in CPI headline inflation for two consecutive months, despite the seasonal firming up of prices of fruits and vegetables since March, was due to the base effect and the steady deceleration in CPI inflation excluding food and fuel. 

Food inflation, particularly in the context of erratic monsoon this year, remains a major worry. While the monsoon has revived and the rains have progressively improved, reducing the rain deficit to 17.0% and alleviating the concerns over the impending drought, the rain deficiency in States like Punjab and Haryana – the food bowls of India – is still hovering at 50%. The think-tanks, including RBI, feel that the battle against inflation is not over as yet.

The impact of unseasonal rains in February and March and the erratic monsoon is there for all to see. Spike in food inflation apart, India's tractor market, which grew more than 20% last fiscal year when most of the automotive sector was on a downhill drive, is facing some rough weather. In India where 60% of farmland is rain-fed, rains as well as their timing and distribution have a direct impact on farm output and farmers' income. Purchase of farm equipment and consumer durables increases in the years when the country gets good showers - especially during the monsoon that brings 70% of the annual rains.

However, benign international crude and commodity prices, despite geo-political turmoil in middle-east, coupled with a modicum of stability exhibited by Rupee in foreign exchange market, is encouraging.

Another encouraging development is that the new Government has set about the task of reforms in labour laws in right earnest, with a view to giving impetus to the industrial activity and improving the investment climate in India. Liberalising and speeding up environmental clearances for various projects, stuck in logjam for years, is also refreshing. The firming up of export growth should support manufacturing and service sector activity, thereby, helping the revival of economic growth and automotive market.

As regards auto retail business scenario, the recent unsavoury reports of the increasing stress in OEM-dealer relations are disturbing, to say the least. 

As the Indian market grows and matures, the customer expectations also increase. As a result, the consumer cases/disputes are also likely to register a sharp increase.  Being the face of manufacturer for the customer, it is largely the dealer, who has to bear the brunt of customer wrath in case of a gap, perceived or actual, between the quality of product & service and the customer expectation. At times, out of souring manufacturer-dealer relations or otherwise, supplies of vehicles and parts are suddenly stopped, leaving the dealers and customers in the lurch.  

Secondly, auto market in India has been going through an acute slowdown for over two years. The intense competition in the market has led to the strain in OEM-dealer relations, culminating in termination of dealerships in quite a few cases. With OEM-dealer agreements heavily loaded in favour of OEMs, such  abrupt and, at times, arbitrary termination of dealerships has not only caused huge loss to the automobile dealerships, but has also left a humungous amount of bitterness in its trail.

Thirdly, as the competition intensifies further, some of my fellow automobile dealers might not be able to cope with the complexities and changing dynamics and, therefore, may not like to continue in the business. In another scenario, manufacturers may not like to continue with the dealers who are not able to keep pace with the company’s plans, targets and expectations.  

Therefore, there is a pressing need to enact auto franchise laws in India as in the US, or to otherwise regulate the relationship, rights and obligations among the manufacturers, dealers and their customers.

In the interest of equity and fair play, the manufacturer should ensure to give adequate reasons and notice for the termination of any automobile dealership; the OEM should take back the inventory or help sell the assets and inventory to some other dealers on cost+ basis before termination of any dealership; or the dealer should be allowed to transfer his dealership and its assets, as a going concern, to another person, subject to the guidelines that may be laid down.

This will avoid: (i) Colossal waste of money and resources spent in creating dealership & workshop infrastructure and stock-in-trade; and (ii) disputes and litigation, that currently arise in case of termination of relationship.

With a combined turnover of around Rs. 4,00,000 crore, auto retail business is 3 times the size of rest of organised retail. The unfortunate part is that while rest of the organised retail steals the attention of the Government, politicians and the media alike and hogs headlines with unfailing regularity, auto retail segment hardly gets the attention it deserves and has no nodal ministry in the Central Government to address its concerns.

We were encouraged when Mr Praful Patel, the then Union Minister of Heavy Industries & PE, addressing us as our Chief Guest at FADA’s 8th Auto Summit on 7th February 2014 at New Delhi, mentioned that a mechanism to address the concerns of automobile retail trade and service industry was under active consideration in his Ministry.

We, therefore, submit to his successor – Mr Anant Geete that the proposed mechanism for redressal of concerns of automobile dealers may be given a concrete shape at the earliest.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 

 

Cautious Optimism

Dear friends,

It is comforting to note that the passenger vehicle sales have witnessed a little uptick in May 2014 after being in negative terrain for a long time. The commercial vehicles continue to struggle, though.

It is too early to say if the modest upswing in passenger vehicle sales seen in May has anything to do with the improvement in sentiment upon the formation of a stable Government at the Centre after the general elections. It will be equally hazardous to guess whether the sales performance of May is any guide or indicator that a firm, sustainable recovery is round the corner.

Automobile market in India has been going through a slump for over two years due largely to the challenging economic environment, inflation, high interest rates, volatile fuel prices and resultant downbeat sentiment. While there have been straws in the wind, inspiring confidence from time to time, all such hopes have turned out to be a flash in the pan.

The automobile dealers have been the worst hit by the prolonged slowdown. While manufacturers can take recourse to the cost-cutting measures during downturn, the automobile dealers do not have leeway to play around with their cost structure. In a sluggish market scenario, the automobile dealers have to contend with the double whammy. The discounts and freebies become the order of the day on one hand, thereby squeezing their margins; the dealerships’ costs go up on the other, as more marketing efforts are required to clear the stocks built up at the dealerships. 

Not surprisingly, J D Power Asia Pacific has come up with startling revelations in its latest survey of automobile dealerships. According to the findings, only 42% of the automobile dealers expect to make profit during the year 2013-14. The situation is worse in the case of automobile dealers in six largest cities, where only 31% of the dealers estimate that they would be profitable during the year.  What is worrisome is that despite somewhat comforting sales numbers in May, there are no clear signs that the auto market is on a road to sustained recovery. Headwinds in the form of lacklustre factory output numbers, tardy pace of infrastructure development, stubborn inflation, high interest rates and fluctuating fuel prices persist. That IIP grew by 3.4% in April is heartening, though.

It is gratifying to note some of the OEMs supporting their dealers through special measures during the tough time. As a result, their dealers have been able to cope with the downturn without much pain. We expect that other OEMs will come up with similar steps to keep the automobile dealers afloat.

We, in auto sector, are pinning our hopes on the new Government at the Centre and expect that the Government will come up with measures at the earliest to boost economic activity, business & consumer confidence and demand.

We, in FADA Council, observed that some of the OEMs have adopted healthy practices and policies, which are not just dealer friendly but seek to promote the sustained growth & development of auto market. It was felt that a study needed to be done in this regard. Accordingly, FADA commissioned Frost & Sullivan to conduct a study on Competitive Benchmarking of OEM Practices of Passenger Vehicles Retail in India.

The objective was to identify and bring forth the best practices of various passenger vehicle players in India so that these best practices become the industry standards.

I am happy to inform that the study has been completed and the report was presented at the media conference organized by FADA on 4th June 2014 at Mumbai. 

The study revealing some of the best practices prevalent in the industry, has also come up with a number of takeaways for OEMs, my fellow dealers and FADA. Four major areas where the OEMs can step in to support their dealers to ensure their business viability in the long run, as  brought forth by the study, are: (i) Well Managed Vehicle Inventory; (ii) Constant Monitoring of Dealer Business Health; (iii) Carefully Monitored Network Expansion; and (iv) Viability support during business slowdown. 

The study recommends that FADA can play a role in facilitating transfer of a dealership along with its assets to another member, as a going concern, in case a member wants to exit the business. The study also calls for collaboration among the automobile dealers in creating common facilities in order to cut costs. With OEMs insisting on exclusive facilities for their brand, I wonder how far this is possible. We shall have to deep-delve into some of the suggestions to translate them into action.

I am hopeful that the OEMs will favourably consider and adopt recommendations contained in the study in the interest of all-round growth of auto sector. 

The last one month saw a lot of action within FADA. In addition to the media conference to release the study, a meeting of FADA Council was held on 4th June 2014 in Mumbai. You will be delighted to know that FADA has signed an MoU with CARE for providing credit rating services to FADA members at 20% discount. It is a non-binding arrangement and the members have option to approach any other credit rating agency, if they so wish.

FADA council also decided to give further impetus to the FADA Academy Training & Development Programme. You will see training programmes being organized under the aegis of FADA Academy at more frequent intervals across the country. In view of the fast changing dynamics of auto retail, the importance of regular training & development programmes cannot be overemphasized.

FADA council has further decided to form a small group of automobile dealers, who will share data & practices to identify benchmarks in various areas of dealership management. A professional consultant will coordinate the activities of this Group, collate the data and come up with  benchmarks.

Council also decided to organize a Two-Wheeler Summit with a theme and focus on issues relevant to two-wheeler segment, sometime in September.

As you are aware, FADA had decided to confer on Mr Ratan Tata the Life Time Achievement Award on behalf of the automobile dealer fraternity for his phenomenal contribution to the growth & development of auto industry in India. Although the announcement was made and the citation in his honour read at the Auto Summit 2014, the award could not be presented to him in person due to his unavailability at that time. The meeting at Mumbai provided an opportunity for FADA to honour Mr Ratan Tata with the Life Time Achievement Award. A 12-member team of FADA presented the award to Mr Tata in his office on 5th June 2014. Needless to mention, Mr Tata is an an industry leader with impeccable credentials and remains a source of inspiration for all of us in auto sector.

A 3-member team of FADA visited Italy to participate at Automotive Dealer Day – a European B2B event – held from 20th to 22nd May 2014 in Verona. The objective of the visit was to understand the scenario and developments in automotive business across the globe and to deepen relations with auto retail organizations in other countries. A report in this regard is published elsewhere in this issue.

FADA has submitted a memorandum to the new Union Finance Minister for the Union Budget 2014, reiterating its suggestions for rationalization of taxes on motor vehicles and introduction of GST at the earliest. We hope that the stimulus by way of reduction in excise duty announced in the interim Budget will be retained. We further hope that the Government will come up with special measures such as higher rates of depreciation in the case of commercial vehicles & passenger vehicles for stimulating demand and modernization of transport fleet in the country.

Please feel free to send your suggestions and inputs, if any.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

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