Automotive Market’s Turnaround - An Elusive Story

Dear friends,

We have been hoping for an early turnaround in the fortunes of India’s automotive market for over two years now. However, all such hopes have been belied. There is no respite in sight, as the sales numbers of April indicate. To make the matters worse, the prolonged election phase, coupled with the prevailing code of conduct since the announcement of elections, has put the immediate mid-course correction on the backburner, resulting in inertia.

Various reports on India’s economy emanating of late are not inspiring either.  The recent set of announcements – (i) the downward revision of GDP growth estimate for 2012-13 from 5.0% to 4.5% and (ii) the advance estimate for 2013-14 at 4.9% - clearly point towards the fact that the slowdown is more deeply entrenched than what was thought earlier. 

With previous three quarters posting tepid GDP growth numbers, the Indian economy will have to clock in a growth of about 5.7% in the fourth quarter to achieve the projected 4.9% growth in 2013-14. This looks difficult to realize. The much anticipated improvement in the second half of this fiscal year has not really shaped up and there is enough reason to dispel the earlier expectation of a possible turnaround. 

The agriculture sector has, of course, been the saving grace. With the second advance estimate exceeding the target level for most of the crops, the food grain production is projected at 263.20 million tonnes in 2013-14. This is a record high. 

One of the major factors bogging down the outlook is the performance of industrial sector and its consequent impact on services. The slowdown in the manufacturing is distressing especially when we are looking at the sector to create new jobs for millions being added to the workforce every year.

According to CMIE estimates, IIP is projected to grow by 0.6% in 2013-14, which is the slowest in over 30 years! For the quarter ending December 2013, the freight traffic in volume terms increased by 1.9%, which is the lowest quarterly growth in almost 20 quarters.

The investment sentiment is still under the shadow of grey clouds and a sense of anxiety among investors’ remains. In addition to the weak business sentiment, high interest rates continue to be one of the key factors adversely affecting the investment outlook. 

The use-based classification of IIP reports 14 consecutive months of decline in consumer durables, including automobiles. The vote on account in last February laid emphasis on the need to get manufacturing back on track and provided tax relief for certain sectors like capital goods, automobiles and consumer goods. This was certainly a positive move; however, we are yet to see a return in buoyancy.

With price levels consistently remaining sticky, high inflation has grabbed much attention and has been the centre piece of monetary policy. Between December 2013 and February 2014, prices did ease off led by a perceptible fall in vegetable prices. However, the latest data for WPI and CPI indicates prices inching up once again. The fuel prices that had not been revised due to the code of conduct for elections are witnessing upswing again with diesel price being increased by over Re. 1 recently.

On the external front, a crisis of sort was averted with the policy measures announced last year. The CAD has been successfully tamed and is expected to be around USD 35 billion in 2013-14, almost half of USD 88 billion in 2012-13. 

On the other hand, the exports after witnessing double digit growth between July and October 2013, have reported a sluggish growth in recent months. February data indicated deceleration after seven consecutive months of positive growth. This trend continued in March 2014 as well, with exports declining by 3.1%. An element of uncertainty remains about near-term export prospects. The continuing sluggishness in the European economy is not helping either.

With host of challenges looming on the horizon, it is critical to give correct policy signals and strengthen the potential upsides. On a positive note, the industry growth is expected to see a rebound in 2014-15. The extent of recovery, however, would depend on the implementation of projects cleared by Cabinet Committee on Investments (CCI). Also, inflation is likely to remain range bound. 

Nonetheless, some stress points remain and might mar the recovery process. First, agricultural production might come under strain as monsoon is expected to be sub-par in the year 2014. Preliminary monsoon reports by various forecasting agencies expect 2014 to be an El Nino year. 

Second, the services sector growth will, of course, be influenced by the recovery in the industrial sector. However, given the precarious fiscal situation, the government is expected to be stringent on the expenditure side. 

Third, while the fiscal deficit as a proportion of GDP has been contained at 4.6% in 2013-14, the target has been accomplished largely as a result of the cut in plan expenditure, which is not good from the standpoint of long-term growth prospects of the economy.

Going forward, it will be vital for the incoming Government at the Centre to ensure stability in policy & a capital friendly environment - an absolute imperative for fulfilling the objective of generating more jobs and fuelling demand.

Regarding activities of FADA, we are in the process of giving shape to a clutch of new initiatives. A study on Competitive Benchmarking of Passenger Vehicle Retail Practices of OEMs in India, for which internationally renowned consultancy firm - F&S was commissioned by FADA, has been completed. Major findings of the report will be released at a Press Conference in Mumbai on June 4.

As you are aware, the study was commissioned by FADA to identify the best practices of various OEMs in various parameters of auto retail and to impress upon other OEMs to adopt those practices in the interest of the sustainable growth of auto industry and retail trade. Another objective of the study is to benchmark auto retail practices in India against international norms and practices.

With the introduction of Basel II & Basel III norms, evaluation of financial health and its rating by an accredited rating agency is one of the important criteria for the automobile dealerships to access loans and borrowings from the banks at attractive rate of interest. FADA Council is in dialogue with a rating agency for rating services for automobile dealerships. The underlying idea is to enable FADA members to avail the rating service at competitive rate. It will be an informal arrangement with an option for FADA members to negotiate with any other rating agency, if they so desire.

We are also working to give impetus to the FADA Academy Training & Development Programme for my fellow dealers across the country. FADA Council is scheduled to meet on June 4 and will consider a number of proposals that have been received in this regard.

Although the Government is hamstrung in taking any major decision due to ongoing elections, I have written to the Hon’ble Union Minister of Heavy Industries & Public Enterprises for appropriate representation of FADA in the Government bodies and early creation of a mechanism for redressal of the concerns of automobile retail trade, which he had assured during his address at FADA’s Auto Summit 2014 on 7th February 2014 at New Delhi.

As I sign off, it is encouraging to note that the General Elections 2014 have given a decisive mandate for a change and a strong Government at the Centre. The country could ill-afford political uncertainty at this critical juncture. Hopefully, it will boost the business and consumer confidence, leading to the turnaround in economy in general and auto market in particular.

With best wishes,

Yours sincerely,

Mohan Himatsingka

Persistent Uncertainty

Dear friends,

Financial Year 2013-14, a difficult year for the auto market in India, is past us. While the auto market has been hoping eternally that the buoyancy will return soon, all such hopes have turned out to be a mirage. The advent of FY 2014-15 has renewed hopes and expectations of an early turnaround in vehicle sales. However, as of now, the situation on the ground remains hazy with no tell-tale signs of an early revival of the market. The political uncertainty amid ongoing general elections is adding to the worries inasmuch as there are no clear signs of the contours of the next Government at the Centre. Unless a strong and decisive Government at the Centre is formed after the general elections to give impetus to the economic growth, the recovery remains a distant dream.

Political uncertainty apart, key microeconomic indicators are not enthusing enough to suggest that a significant upward swing in economic growth or auto market is round the corner. It is, however, not to suggest that there is a doom and gloom. While the Indian economy is witnessing a modicum of stability, there are no straws in the wind indicating that it is ready for take-off once again anytime soon.

As per the latest figures released by the Central Statistics Office, the Index of Industrial Production (IIP) for February 2014 was around 1.9% lower than the same period last year. The manufacturing went down as much as 3.7% compared to February 2013. The IIP had returned to the positive growth path with a moderate 0.8% rise in January 2014 after three months of negative growth.  The return of industrial production to the negative territory is extremely disappointing and is much below the expected industrial potential. It is also disconcerting to note the negative growth of the manufacturing sector for the fifth consecutive month, indicating a downturn in the business cycle. What is of additional concern is that the negative IIP growth has happened despite the favourable base of last year. 

The significant shrinkage in the production of capital goods and consumer durables shows that industrial revival is far more difficult in the present scenario. The negative growth of manufacturing has got serious implications for the overall growth, employment and trade balance as the lack of depth in manufacturing has been affecting India’s economic security and stability. The latest numbers suggest that the pain is not going to end so fast and the economic revival will take time.

Adding to the woes is the slowing export performance of late. India missed its goods export target for 2013-14, falling short of the annual target by about USD 13 billion, with exports declining for the second straight month in March 2014.  

The cold comfort is that for the FY 2013-14, trade deficit, however, was about 25% lower that the last fiscal. The narrowing trade deficit should come as a relief for the Government, which has been struggling to keep the current account deficit in check to avoid a foreign exchange crisis. There may be cheer on the deficit front but there is little optimism on export front due to continuing global slowdown, particularly the slowdown in Europe. 

India weathered a mini economic crisis in July/August 2013, when there was mayhem in the market with Rupee touching 69 to a dollar, inflation remaining stubborn at uncomfortable elevated levels and crude oil prices displaying volatility. Though the economy is showing a semblance of stability currently, there is no significant uptick expected in near term. It means that the auto market, the fate of which is intertwined with the pace of economic growth, cannot expect to bounce back in near future. The multilateral agencies, though bullish about the long-term prospects of the Indian economy, have estimated moderate growth in the range 5–6% in the current and next fiscals, which is modest in the backdrop of heady growth rates of 8–9% achieved not long ago.

The World Bank has projected an economic growth rate of 5.7 per cent in fiscal year 2015 for India on the back of a more competitive exchange rate and many large investments going forward as against 4.8 per cent growth in the FY 2013-14. Another multilateral agency IMF has forecast that Indian economy would recover from 4.4 per cent growth in 2013 to 5.4 per cent in 2014. 

The Planning Commission may lower its average GDP growth target for the 12th Plan period (from 2012-13 to 2016-17) to 6% when the new government carries out a mid-term appraisal later this year. The UPA government projected GDP growth for the 12th Plan at 9% in the ‘Approach Paper’, and cut it to 8% following the European debt crisis and the domestic slowdown. 

Fitch Ratings expects the economic growth to increase from 4.7% in 2013-14 to 5.5% this fiscal and 6% in the next year, warning that high fiscal deficit and inflation remain major challeges.

We are hopeful that the installation of new Government at the Centre in May/June will set the economic policies in motion, boosting confidence and giving impetus to the economic activities. However, there are two difficult tasks for the new Government, viz. (a) restoring fiscal prudence; and (b) countering the spectre of El Nino looming large on the horizon.

As we all know, in the election year, the populism takes the driver seat and fiscal prudence is put on the back burner. The state of Government’s finances is not a happy one. The government is likely to miss its revised indirect tax revenue target for the 2013-14 fiscal by about Rs. 17,648 crore on account of the economic slowdown. Government's fiscal deficit in the 11 months through February 2014 has overshot the revised estimates of       Rs. 5.24 lakh crore for this fiscal. Central government’s fiscal deficit is 114.3 per cent of the entire year’s budget estimate (BE) during April-February 2013-14. During this period, plan expenditure and non-plan expenditure have recorded a rise as compared to the same period of previous year. On the other hand. government revenue collection has recorded a fall, leading to the worries whether the fiscal deficit would be contained at the targetted 4.8% of GDP in the FY 2013-14.

Another major challenge for the new Government would be to counter the threat of El Nino phenomenon, which has serious adverse effect on the monsoon. If threat becomes a reality, the agriculture production is likely to suffer, negating all plans and projections. Needless to mention, though agriculture sector accounts for 15-17% of India’s GDP, its spin-off effect on inflation, industrial activity and economy as a whole cannot be overemphasized. It is, in fact, the agriculture growth that propels the economy.

All said and done, the economy is not in bad shape currently as it was 8-9 months ago. The rupee has stabilized, so has the inflation, although prices are showing upward movement lately. The stock market is bullish with FIIs coming in drove and investing in Indian market again. Likewise, the crude oil prices remain, by and large, stable. I am sanguine that with economy surely and steadily picking up, auto market will regain buoyancy in the second half of the current fiscal. Hopefully, the people will give a clear mandate and not a fractured one.

Regarding FADA’s activities, I must confess that the month gone by has not seen much of action, as all my fellow council members were busy with meeting their year-end targets and closing their annual accounts for the year 2013-14. 

After a breather, we are back again on our feet. After a series of training & management development programmes across the country, the next training & development programme, in association with Prashaste Training Academy under the aegis of FADA Academy, is going to be organized in Bangalore on 25th & 26th April 2014, which will be followed by two more such programmes in Delhi and Hyderabad in May and June, respectively.

As informed in my previous column, we are in dialogue with a rating agency so that my fellow dealers could avail rating services for accessing bank loans at attractive rates.

While we had earlier proposed a council meeting some time in April, the meeting is now rescheduled for May 2014, as we would like to synchonise the council meeting with the presentation of Life Time Contribution Award to Mr Ratan Tata by a team of FADA office bearers in person at his office in Mumbai.

FADA has also drawn up elaborate plans for celebration of its Golden Jubilee Year in style some time in September 2014 at the time of its Annual Session and AGM.

You will be hearing about these events as and when the programme is finalized.

Look forward to your suggestions and inputs for making the activities of FADA more meaningful to its constituent members.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 Auto Summit 2014: An Enriching & Rewarding Experience

Dear friends,

FADA’s biennial event, viz. Auto Summit 2014 has concluded. I am happy to note that the Summit went off very well and was a tremendous success in terms of participation, scale, grandeur, stature of guest speakers and quality of deliberations. 

FADA’s journey of organizing Auto Summit biennially started in the year 2000, coinciding with New Millennium. There has been no stopping since then; each successive edition of Auto Summit has been getting bigger and better.

The Auto Summit 2014 took place amid gloomy scenario for the auto market that has been reeling under acute slowdown for the last two years. However, that did not deter my fellow dealers and others connected with automotive business from participating. The downbeat sentiment notwithstanding, the response was overwhelming and there was a palpable enthusiasm and excitement among the participants. This goes to show that Auto Summit, which brings all stakeholders together on a common platform to mull and come up with innovative ideas to tide over the current & emerging challenges, has become a big draw and a ‘must-attend’ event in the calendar of all those associated with automotive business.

The scale and grandeur of Summit apart, it was a learning and enriching experience for all the participants - be it the Government, the auto industry or the auto retail. The outcome emerging from the two-day deliberations was that India’s long-term growth story remains intact in spite of the long spell of downturn confronting the auto market in India currently. While the situation is critical and challenging at the moment, the good old days are likely to return with macroeconomic environment showing green shoots of recovery and political situation likely to stabilise in the second half of FY15.

The deliberations threw up a number of recommendations and takeaways for the Government, automobile manufacturers and the dealers. The issues of abysmally low margins and lop-sided OEM-dealer relations came out of the discussion cogently. The takeaway for the dealers was that it is the healthy HR practices, employee satisfaction and customer relations that separate the successful dealers from the rest.

More importantly, the Summit helped in sensitizing the Government through the Hon’ble Union Minister for Heavy Industries & PE on the issues of concern to automobile dealers. It was heartening to learn from the Hon’ble Minister that his ministry is working on the guidelines and mulling a mechanism within his ministry for redressal of the concerns of auto retail.

The Summit also offered an opportunity to present the findings of the study on ‘Competitive Benchmarking of Passenger Vehicle Retail Practices of OEMs in India, conducted by F&S on behalf of FADA, in the presence of representatives of OEMs. The findings were revelations both for the OEMs and the dealers. The objective of the study is to bring to the fore the best practices of OEMs and to try to replicate them across the industry.

In this maddening world, there is sometimes a need to pause and turn to spiritual solace. This was the idea underlying the scheduling of a motivational/spiritual session by Mahatria Ra, Diviner of the Path Infinitheism. No business can flourish without ethics, commitment, faith, passion and decisive leadership, which Mahatria Ra elucidated and illustrated in his one-hour spiritual/motivational discourse that kept the audience spell-bound. 

The Summit that coincided with the 50th year of FADA’s existence also provided us an opportunity to honour the doyens of auto industry and retail automobile trade, namely, Mr Ratan Tata, Dr Brijmohan Lall Munjal, Mr Arun Sanghi and Mr Rakesh Jain for their singular contribution and pioneering role in promoting the growth & development of auto industry and auto retail in India. We could not have asked for a better occasion to felicitate these stalwarts.

It was also an occasion to recognize and reward my fellow dealers, who have performed exceptionally well in dealership management and done outstanding work in promoting safety, green environment, social good and community welfare as a part of their CSR initiatives. I strongly feel that no business can operate in a vacuum. For any business to survive and thrive, it is imperative that it enjoys the sanction and goodwill of the society. Automotive Dealership Excellence Awards, instituted jointly by FADA and Auto Monitor in the year 2009, not only aim at recognizing the best auto retail practices, but also create visibility, bringing in loads of the goodwill of the society for the social & community work being carried out by the members of automobile dealer fraternity across the country. I convey my congratulations to the worthy winners in various categories and individual performance parameters.

The best part is that Auto Summit is not all about business alone. It is also an occasion for automobile dealers to meet and interact with the leaders of auto industries & allied businesses as well as their fellow dealers from within India and outside, enabling them to get an insight into the scenario and developments pan India and other parts of the world.

Auto Summit 2014 was special in that an International Round Table, involving discussion with our international guests on the auto retail practices and regulation of auto retail obtaining in other countries, was a part of the programme. While there are franchise laws and some kind of regulation governing OEM-dealer relations in America and Europe, there is an imperative need for a mechanism regulating OEM-dealer relations in India. I am happy to note that the Hon’ble Minister responded positively to this suggestion in his address at the Inaugural Session.

All said and done, Auto Summit 2014 was a great experience for me personally. I am sure, all those who participated would have had equally great experience. Especially, the Summit provided me an opportunity to meet and interact with my fellow dealers from across various regions. In view of the fact that India is a vast country geographically, it is well-nigh impossible for the FADA office bearers to visit each and every city and town to meet the members of auto retail business community spread over the length and breadth of the country.

The scale and grandeur at which the Auto Summit 2014, impeccable programme and elaborate arrangements at the Summit could not have been possible but for the painstaking efforts of some of my colleagues in FADA Council. I express my sincere thanks to the members of Council and Auto Summit Committee and, in particular, Mr Vinay Nevatia - Chairman, Auto Summit 2014; Mr Rakesh Jain - Director, Auto Summit 2014; and Mr Bharat M Sanghvi - Past President, FADA, who spared no effort to make the Summit a stupendous success.

I am indeed grateful to the Hon’ble Union Minister of Heavy Industries, leaders of industry & allied businesses, consultants & management gurus, and academia for taking time off their busy schedule to be in our midst at the Auto Summit to enlighten and enrich our experiences.

We would not have been able to organize the Summit at such a scale but for the support of sponsors. I gratefully acknowledge and value their support. 

My thanks and gratitude to my fellow dealers and others who participated at the Summit overwhelmingly, displaying a lot of enthusiasm, to make its proceedings lively and the outcome meaningful.

Last but not the least, my grateful thanks to our international guests, who spent their valuable time and travelled long distances to be in our midst to provide global perspective to the discussion.

As I sign off, it is gratifying to note the reduction in excise duty on motor vehicles announced in the interim Union Budget. I hope, the stimulus will go a long way in reviving the auto market that has been witnessing a prolonged slump. I, on behalf of FADA, express my sincere thanks to the Hon’ble Finance Minister and the Hon’ble Union Minister of Heavy Industries for providing relief to the auto sector.

Please feel free to send your suggestions and inputs to make activities of FADA more meaningful to its constituents.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 Straws in the Wind Inspiring Hope

Dear friends,

Hope, you would have enjoyed and celebrated the festival of colours - Holi with the usual gusto and fervour associated with it.

There have been developments, both external and internal, of late, which are inspiring and fuel hope that the economy has bottomed out and that the economic crisis staring us in our face 7-8 months back, with Rupee touching record low of about 69 against Dollar, stubborn inflation showing no sign of relenting and threat of downgrade looming large on the horizon, is behind us.

As Current Account Deficit (CAD) for the entire Financial Year 2013-14 is estimated at about $ 32 billion, which is less than 2% of the GDP, worries on account CAD, rising to alarming levels in the previous financial year, have subsided. The Rupee that was threatening to breach new barriers has since strengthened against Dollar and is showing a semblance of stability. The Sensex is on upward march and scaling new high with each passing day.

Inflation, the scourge of economic ills and resultant weak sentiment and subdued demand, has started climbing down. Both WPI and CPI are inching down, albeit at snail’s pace. The Government has reduced excise duty on all motor vehicles across board in the interim budget. While the excise duty cut has so far not made any meaningful impact on the demand for motor vehicles, it is expected to kick-start sales at the retail level, as people are likely to avail the benefit of lower prices particularly before the close of current Financial Year.

The expectation of healthy agricultural output has been dampened somewhat by the unseasonal freak rains in various parts of the country. However,  the country remains on course to clock record foodgrain production on the back of expected bumper crop in wheat and rice as a result of good monsoon during the year 2013-14. The country is expected to witness a growth of 4% in agriculture, which is likely to remove, to a great extent, the demand-supply mismatch in agricultural commodities and products and ease the prices further.

On the flipside, IIP is not picking up and remains flat, at best, as the data suggest. Nor is services sector, the mainstay of Indian economy for years now, showing any significant uptrend. While FIIs have started to flock to India once again and have been pumping in money of late, the domestic investment climate remains lacklustre. There is no significant improvement on infrastructure development front. Though the current Government has tried to dispel the impression of policy paralysis and cleared over 300 projects entailing an investment of Rs. 6.6 crore during the last one year, it is yet to find reflection on the ground.

Secondly, the political situation in the country continues to be hazy and we are, at the moment, keeping our fingers crossed whether general elections slated for April and May 2014 will throw up a stable Government at the Centre. As such, if the buoyancy in Sensex being witnessed currently will be sustained after the results of general elections remains a question mark, especially when the industrial sector continues to struggle and GDP growth remains below-par with Q3 FY14 witnessing just 4.7% increase in GDP vis-à-vis 4.8% in Q2.

Unless economy in general and industry, in particular, starts growing at decent rate, creating jobs and opportunities for the young Indian population, somewhat improvement in sentiment being witnessed at present may  be short-lived. 

Needless to mention, the fate of auto market is intertwined with the pace of growth in economy and industry. This is reflected in the fact that despite the excise duty cut,  uptick in Sensex and improvement in sentiment as a result, the demand for motor vehicles, especially for commercial vehicles and passenger vehicles remains sluggish. Hope, we shall see a tangible uptrend in the growth of economy and industry soon to make the green-shoots of recovery sustainable, thereby, enabling the auto market in India to thrive and flourish again.

I am optimistic, cautiously though, that the auto market will bounce back shortly, particularly after the formation of a stable government at the centre.

Adverting to the FADA’s activities, we, in FADA Council, have had some breather, after hectic work and preparations for the Auto Summit 2014, to reflect on our further course of action. Simultaneously, we have started following up on the outcome of Auto Summit. As mentioned in my previous column, we are working on organizing a regional convention of two-wheeler dealers. The objective of holding a convention focusing on two-wheelers is that the issues relating to two-wheelers, which, at times, get eclipsed by the more glamorous passenger vehicle segment get focused attention. Likewise, FADA Council is also mulling to organize a conference focusing on issues relating to commercial vehicles and to institute awards for recognizing and rewarding the transport operators excelling in various areas of their operation. These two activities are on the anvil and you will be hearing in this regard soon.

Another activity that is engaging our attention is the tie-up with a rating agency. As you are aware, with the introduction of BASEL II and BASEL III norms, the lending banks insist on the evaluation for credit worthiness and credit rating by an accredited rating agency for access to bank credit/loan and determining rate of interest chargeable. However, the fee/charges being charged by the rating agencies are abnormally high and beyond the reach of a large section of the dealers. FADA is in dialogue with a rating agency who would undertake evaluation/rating of automobile dealers for credit worthiness at special rates. As in the case of tie-ups FADA has had with other agencies/companies for various other services, while FADA will indicate broad fee structure, it will be for the individual dealers to negotiate the terms of engagement. 

The training & development programme being conducted in association with Prashaste Education and Management Consultancy is being carried on across the country. The latest such programme was organized at Kolkata. While there has been a slackness in this activity of late, efforts are afoot to impart impetus and increase frequency of these programmes.

Recently, a team of FADA members had a meeting with the Taxation Committee of SIAM to discuss issues relating to service tax between OEMs & automobile dealers on one hand, and automobile dealers and customers on the other. I also participated in that meeting that witnessed free and frank discussion and identified major service tax related issues requiring common approach and understanding. 

Two issues that hogged major part of the discussion were: (i) Taxability of sales-linked incentives received by the dealers from their OEMs; and (ii) Tax treatment of ‘Logistics/Handling Charges’ recovered by the automobile dealers from the customers. FADA has always maintained that various types of sales-linked incentives are in the nature of trade discount and hence, attract no service tax. It was suggested by FADA that all sales-linked incentives should be shown by the OEMs as trade discount in their credit notes to avoid unnecessary scrutiny by the Service Tax Department, which leads to dispute and litigation in large number of cases.

On the issue of tax treatment of ‘Logistics/Handling Charges’ - Whether such charges attract service tax or VAT, it was felt that the ideal solution would be to merge handling/logistics charges in the dealer margin. Such a step will not only avoid dispute and litigation on the type of tax applicable but will also obviate public revulsion and litigation. Hope, OEMs will consider this suggestion in all earnestness and increase dealers’ margin dispensing with the need for logistics/handling charges.

There are many more initiatives/activities under active consideration of FADA Council. My fellow dealers will be hearing about them shortly. Meanwhile, if you have any suggestion or proposal to make the FADA’s activities more meaningful for its constituent members, feel free to send your inputs and suggestions to me or the FADA Secretariat.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 

 

Palpable Excitement as D-Day Draws Near

Dear friends,

There is a palpable excitement within the automobile dealer fraternity as the D-Day draws near. FADA’s mega biennial two-day event, i.e. Auto Summit 2014 is all set to commence on 7th February 2014 at New Delhi.

Auto Summit 2014 is being held at a time when the Indian auto market is going through the worst slowdown in its history. It needs no reiteration that all segments of auto industry have been witnessing acute downtrend for about 21 months now. Moderate growth of two-wheelers is a cold comfort, though. The immediate outlook does not look bright due to the challenging economic environment facing the country. The Government’s decision making has virtually come to a standstill with elections round the corner. In spite of the pious intention of the Government, mining activity and road building activity are not taking off, chiefly as a result of environmental, land acquisition and contractual issues.

Key economic indicators do not inspire confidence either. Inflation is stubbornly sitting at an elevated level well beyond the comfort zone, restricting elbow room for RBI to ease interest rates.  While there has been a downward movement in inflation, it is too little and thanks to the seasonal factors. The experts continue to be wary of the sustainability of downtrend in prices. The uncertainty and volatility continues to beset fuel prices.  The service sector that has been the mainstay of Indian economy in the recent past has been slipping for some time. Economy, as a whole, is growing at a snail’s pace putting pressure on the Government’s finances. The threat of downgrade by the international rating agencies continues to loom large on the horizon.

Considering the macroeconomic challenges and uncertainty prevailing in political space, the auto market is unlikely to pick up in the next 5-6 months. Our hopes rest on the formation of a strong Government at the Centre after the general elections, which can provide impetus to the economy and, as a result, to the auto market.

In view of the sombre mood currently obtaining, the theme: ‘Auto Retail – Survival Mantra’ of Auto Summit 2014 assumes an added importance. Automobile dealerships are finding it extremely difficult to stay viable because of fewer footfalls and retail sales, resulting in excessive inventory build-up, overheads and costs. The unfortunate part is that the automobile dealers do not have much leeway to reduce their costs. 

No wonders, J D Power Asia Pacific in its 2013 Dealer Satisfaction Survey has come up with startling revelations. The study finds that only 44% of the automobile dealers expect to make profit during the FY’ 2013, which is a cause of serious concern and wake-up call for the manufacturers and the Government.

FADA has undertaken another study on ‘Competitive Benchmarking of Passenger Vehicle Retail Practices of OEMs in India’. The study being conducted by Frost & Sullivan, an internationally renowned management consulting firm has been commissioned with the following key objectives: (a) To benchmark the best practices followed by OEMs; (b) To showcase key take-aways for benchmarks which if implemented should support auto retail business; (c) To identify solutions to the difficulties being faced by dealer community to sustain profitability; (d) To bridge & strengthen relationships; and (e) To support & generate a two-way clear, transparent and strong business atmosphere.

The study shall also put forward recommendations for improvement & sustainability of auto retail business. I am sure, the study shall equip the dealer fraternity to be fully aware of the best practices of OEMs for use during interactions.

The presentation of highlights of this study and discussion thereon at which a large number of OEM representatives will be present will be a special feature of the Auto Summit 2014.

I am delighted to inform that Auto Summit 2014, coinciding with 50th Anniversary of FADA, will honour Mr Ratan Tata and Dr Brijmohan Lall Munjal with the Life Time Contribution Awards for the singular contribution made by them in the growth and development of auto industry in India.

As a part of this event, Automotive Dealership Excellence Awards for the year 2013 (ADEA 2013) – an annual activity initiated jointly by FADA & Auto Monitor magazine in 2009 with a view to recognise and reward exceptionally performing automobile dealerships – will also be presented at a gala function in the evening of 7th February 2014. The previous four editions of ADEA evoked a tremendous response.

Another special feature of Auto Summit 2014 is the scheduling of an informal discussion with leaders of industry over tea/coffee, preceding ADEA function.  The occasion will enable automobile dealers to informally discuss and share their experiences with the leaders of industry over tea/coffee and get industry’s perspective of current and emerging scenario.

An International Round Table at which representatives of retail organisations of various countries will participate to discuss issues and concerns and auto retail practices prevailing across the world, is an integral part of the programme of Auto Summit 2014. The Round Table will also discuss the need for franchise laws to protect the interests of automobile dealers in the context of dominance of OEMs in dealer-manufacturer relations.

The programme of Auto Summit 2014 has scheduled six workshops on core issues affecting the brand image, efficiency, HR practices, technology, productivity and profitability of automobile dealerships. These workshops have been scheduled during 2.15 p.m. to 4.30 p.m. on 8th February 2014.

Thanks to the efforts put in by the Auto Summit Committee members and Council members, especially Mr Vinay Nevatia, Chairman, Auto Summit 2014; Mr Rakesh Jain, Director, Auto Summit 2014; and Mr Bharat M Sanghvi, Past President, the programme of Auto Summit 2014 has shaped up very well. There has been an overwhelming response from the Government and the industry.

We are honoured and privileged that Mr Praful Patel, Hon’ble Union Minister of Heavy Industries and Public Enterprises, has kindly consented to inaugurate the Summit and to deliver the inaugural address. Mr Venu Srinivasan, CMD, TVS Motor; Mr Vikram Kirloskar, President, SIAM and Vice Chairman, TKM;  Mr Uday Kotak, Executive Vice Chairman, Kotak Mahindra Bank; Mr K Muramatsu, President, CEO & MD, HMSI; and Mr Albert Gallegos, Director–International Affairs, National Automobile Dealers Association (NADA) will be the Guests of Honour at the Inaugural Session.

The impressive array of speakers does not end with the inaugural session. We shall have ‘who is who’ of auto industry and allied businesses, renowned management & spiritual gurus, who will address and interact with the participants at the Auto Summit.

The theme emphasises the need for out-of-box thinking to tide over the current difficult situation and new mantra for survival.

The 8th Auto Summit provides a common platform for Government, industry, automobile dealers, management consultants, academia and think tank to deliberate and to throw up innovative workable ideas for surviving and steering through the challenging environment the auto market is in today. 

The Auto Summit 2014 is a unique opportunity for my fellow dealers and others in industry & allied businesses to enrich their experiences and equip themselves to stand up to the current and emerging challenges.

I, therefore, appeal once again to my fellow dealers, in particular, not to miss this opportunity and to register for the Summit in large numbers.

I am thankful to the industry leaders and a galaxy of other eminent speakers, who have agreed to address the participants and grace the occasion.

Last but not the least, I am equally gratified by the support extended to the Auto Summit 2014 by the industry and the allied sectors as sponsors and convey my sincere thanks and gratitude to them.

Looking forward to meeting you all at the Auto Summit 2014.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

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