Revival of Auto Market - Chasing a Mirage

Dear friends,

The turnaround of auto market is becoming a mirage with slowdown bug continuing to haunt the market. The sales figures for the month of November 2013 once again depict a gloomy picture as has been the case for over 20 months now, a reasonably decent performance of two-wheelers notwithstanding.

There is no respite or breather for commercial vehicle and passenger vehicle segments, which are reeling under severe slowdown. The worry is compounded by the fact that the economy is not looking up and the business sentiment remains low as a result. Macroeconomic data emerging of late does not inspire much confidence either. 

The Indian economy expanded by 4.8 per cent during the second quarter of the current financial year versus 5.2 percent during the same period of 2012-13. Sub-5% growth of GDP for the fourth consecutive quarter is a cause of concern. The two drivers of growth this year - good monsoons and exports - are insufficient to pull the economy out of the present slowdown, as mining, manufacturing and service sector output remains subdued.  Unless the Government gets its act together and quickly fixes the problems in manufacturing, the stress in other sectors will also be reflected.

Issues relating to policy implementation and administrative roadblocks need to be addressed immediately, as otherwise we do not see the sentiment or the auto market improving in the near future until after the formation of a strong Government at the Centre in 2014.

Hon’ble Union Finance Minister had used in this year’s Union Budget a GDP growth estimate of 5% for 2013-14 for the purpose of pegging various targets. Since the GDP growth rate for the six months April-September is 4.6 per cent, it will have to be at least 5.4 per cent during October-March if India is to achieve a growth of 5 per cent in 2013-14. 

Achieving 5.4 per cent growth in the second half at the moment seems difficult. This means the Finance Minister will probably have to press in even greater budget cuts to meet the fiscal deficit target he has set himself, restricting the investment and growth further.

The disturbing news is that the rating agency Standard and Poor’s (S&P) has warned that India’s sovereign rating could be downgraded to junk status next year if, post-general elections 2014, the next government fails to revive stalled structural reforms, faltering economic growth and the stress of subsidies on state finances. 

Another major concern and cause of low sentiment prevailing in the market is the continuing high level of inflation that is showing no sign of climbing down. Food inflation, in particular, remains at worrisome level. There is a downtrend of late, though. The problems accruing from low investment and consumption demand together with high food inflation are holding back the economy.

However, it is not a gloomy story all the way. There are a number of experts and analysts who view the macroeconomic developments of late as sign that Indian economy is on its way to recovery.

Agriculture has performed better on the back of good monsoon. Agriculture growth rose to 4.6 per cent during July-September from 2.7 per cent in April-June, the growth for the first half of 2013-14 for the farm sector being 3.6 per cent.

Recently, the prime minister's Economic Advisory Council projected 4.8 per cent growth for agriculture in 2013-14, although skeptics do not agree with this projection. In comparison, agricultural growth last year was 1.9 per cent.

Healthy growth in agriculture sector will come as a shot in the arm for the ailing Indian economy. Robust agricultural growth is expected to contain inflation, support industry and services, and increase employment opportunities in rural India. Good performance of agriculture sector is also likely to drive industrial growth and consequently have a positive impact on services. It might ease pressure on government employment schemes as well. 

Agriculture's contribution to the overall gross domestic product (GDP) has fallen from about 30 per cent in 1990/91 to about 15 per cent in 2011-12. Nonetheless, given that roughly half of India's workforce is engaged in agriculture, it remains the backbone of the Indian economy. 

The industry remains cautiously optimistic and feels that the higher than expected growth in the second quarter of 2013-14 is an indication of revival in economy. 

Secondly, the exports have been doing very well for the last 4-5 months and CAD is gradually coming down to the manageable level with imports, particularly the import of gold, displaying downward trend. 

While agriculture sector and exports offer some cold comfort, the situation for auto market is alarming and unprecedented and calls for urgent special measures on the part of both the OEMs and the Government.

The problem faced by the members of automobile dealer community is that they do not have elbow room for cost cutting. While manufacturers have some leeway in cutting their costs, like recourse to lean manufacturing, temporary shutdown of the plant and retrenchment/layoff, automobile dealers cannot significantly play around with their cost structure.  On the contrary, their marketing and inventory holding costs have gone up steeply due to fewer footfalls and sales, resulting in huge inventory build-up at automobile dealerships. It must be mentioned that the automobile dealers, dealing in passenger vehicles, are saddled with inventory worth over Rs. 20,000 crore. The situation is no better in the case of commercial vehicles.

The situation is assuming serious proportion. Not surprisingly, J D Power Asia Pacific in its Dealer Satisfaction Survey has brought forth an alarming finding that only 44% of the automobile dealers expect to make profit during the year 2012-13.

It is, somewhat, comforting that few manufacturers have already come up with measures extending support to their dealers in one form or the other, like interest free credit for inventory procurement, enhanced sales margins, incentives, etc. to tide over the current situation.

Since this is an unprecedented recession, we would request that OEMs may initiate special measures for improving the viability of their dealers, which is under severe stress due to acute recessionary conditions prevailing in the market for over 20 months.

While the automotive scenario may not be something to write home about, rest assured, we, in FADA council, are making earnest efforts to improve the viability and profitability of automobile dealer fraternity.

Hopefully, Auto Summit 2014 – FADA’s 8th biennial event – scheduled for 7th & 8th February 2014 at New Delhi, which will bring various stakeholders, namely, the Government, the industry, management consultants & academia representing independent perspective and members of auto retail fraternity from across India and abroad on a common platform, will address key issues of concern to automobile dealers and come up with workable solutions in the interest of growth and development automotive business as a whole.

The Auto Summit is also an occasion to build and deepen relations with various stakeholders. I am happy to inform that FADA will be honouring Mr Ratan Tata and Dr Brijmohan Lal, the industry stalwarts in their own right, with Life Time Contribution Awards.

It is heartening to note that the programme of Auto Summit 2014 is shaping up very well. Mr Praful Patel, Hon’ble Union Minister of Heavy Industries has already consented to inaugurate and to deliver his inaugural address at the Auto Summit 2014. The confirmations from the leaders of eminence representing industry & allied businesses, renowned management gurus and members representing auto retail in other parts of the world are pouring in thick and fast.

I reiterate my appeal to my fellow dealers to register for the Auto Sumit 2014 in large numbers and participate overwhelmingly to make most of this unique opportunity.

Likewise, the preparations for Automotive Dealership Excellence Awards for the year 2013 (ADEA 2013) are progressing very well. I am gratified to note that the response in terms of entries for the awards is very good so far. As you are aware, the awards presentation ceremony for the 5th edition of ADEA has been scheduled, as a part of the programme of Auto Summit 2014, in the evening on 7th February 2014. ADEA is an opportunity for my fellow dealers to get recognized and rewarded for their excellence in various areas of dealership management and outstanding work in social & community welfare. Please come forward and send your nominations for the award, if you have not done so earlier, to showcase your outstanding performance & practices and to make the awards truly representative of excellence in auto retail and social & community work.

Look forward to your support in making Auto Summit 2014 and ADEA a grand success as in the past.

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

Wishing you a Merry Christmas and a Happy New Year,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 

 

NOT MUCH TO CHEER ABOUT

Dear friends,

The long festival season has concluded.  Hope, my fellow dealers would have had a blast and a lot of fun and frolic during these festivities.

However, what I understand from fellow automobile dealers and media reports is that the long period of festivities culminating in Diwali failed to light up the mood of auto market, as the vehicle sales, barring those of two-wheelers, remained subdued in October. The cold comfort is that the two-wheelers have kept the momentum going, sustaining hope that the recovery for auto market may be round the corner.

It is a feeling of déjà vu all over again.  We, the automobile dealer fraternity, have been hoping against hope eternally that the market will turn around soon.  However, time and again, our hopes have been belied. A reasonably good performance of two-wheelers for the last four months gave rise to the expectation of other segments of the market regaining momentum.  However, the recovery is becoming a mirage for the business as a whole and the auto market, in particular. 

The developments on economic front, while signalling that there is no reason to feel dejected, are not enthusing either. The rupee is once again witnessing free fall against dollar, causing worries that another dose of fuel prices may be on the cards.  The fear of Fed tapering has resurfaced, as the job data from the US shows that the American economy is better-than-expected.

The economic and industrial activity is yet to show any tangible improvement. Infrastructure and development projects are moving at snail’s pace in spite of efforts to fast-track them. Due to uncertain political environment and the forthcoming general elections sometime in May 2014, investors, both domestic and international, are keeping their investment plans on hold for the time being.  Interest rates continue to be sky-high and the consumer confidence is subdued due to job uncertainties.  To top it all, the inflation, fuelled by the soaring food prices, is stubbornly hovering well above the RBI’s comfort zone and showing no sign of climbing down.

All said and done, the economy and the auto market may be down but are not out. There are few positive developments that fuel hope of revival in the fortunes of auto market.

One, the rain god has been bountiful this year. The country witnessed an above normal rainfall. The monsoon was not only good in quantity but also in coverage. This has yet again rekindled the hope and an expectation of a bumper kharif crop, which is likely to lead to higher rural incomes and demand.  This will, in turn, have ripple effect on other sectors of economy, including auto sector.  The resurgent mood of rural people is already finding reflection in the growing sales of two-wheelers.

Secondly, the exports clocked their fastest pace of growth in two years, rising 13.5% to $27.3 billion during October, as demand for goods picked up in the US and Europe and Indian exporters gained from a sharp depreciation of the Indian rupee. 

The trade deficit narrowed to around $10.5 billion, nearly half the level seen a year ago. Oil imports too provided some comfort, rising 1.7% to $15 billion. 

Trade deficit has been a major policy headache for the government and investors have raised concerns over financing the huge gap. In recent months, however, with a fall in imports and resurgence in exports, trade deficit is seen to be more manageable, prompting the FM to lower the annual estimate for current account deficit to $60 billion or lower, compared to $70 billion projected earlier.  The trend of growing exports and slowing imports due to the depreciation of rupee and the curbs on imports of gold and silver, witnessed of late, has led to the hope that the CAD will be brought down further to $50 billion or 2.7% of GDP.

We are, therefore, looking forward with a sense of anticipation, to the revival in sentiment of auto market and to the better sales volumes in the remainder of the current fiscal.

Adverting to the activities of FADA, as I mentioned in my previous column in October, our preparations for the Auto Summit 2014 are going full-throttle. I am happy to inform that Mr Praful Patel, the Hon’ble Union Minister of Heavy Industries has already consented to inaugurate the Summit and to deliver his inaugural address. The confirmations are pouring in from industry leaders as well.

An International Round Table that will have the participation of our fellow dealers from international community and discuss auto retail practices across the major markets in the world is also scheduled, so are the workshops on matters concerning day-to-day management of the automobile dealerships. These workshops will discuss ways and means of improving efficiency & productivity, cutting costs and plugging leakages through CRM, processes and technology. I may add here that these workshops were roaring success last time and evoked an overwhelming response.

The Auto Summit is an opportunity for automobile dealers and others connected with automotive business to enrich their experiences. Especially for the automobile dealers, it is an occasion to meet their Principals and fellow dealers from within and outside India and to build and deepen their relations. The participants at the previous Auto Summits had a fulfilling experience, which they cherish.

The presentation of awards for the Automotive Dealership Excellence Awards for the year 2013 in the evening on 7th February 2014 forms an integral part of the programme of Auto Summit 2014. The awards instituted in 2009 to recognize and reward excellence in various areas of auto retail business  as well as the contribution of members of auto retail fraternity in CSR activities and community service have been growing in popularity and participation with each successive edition.  The objective of instituting these awards is to bring forth best practices in auto retail business as benchmarks for other fellow dealers to implement in their dealerships. Another objective of these awards is to highlight the contribution of automobile dealer fraternity in social work and community service, as no business can survive and thrive unless it enjoys the goodwill of the society.  

My appeal to my fellow dealers is two-fold: (a) Register in large numbers for the Auto Summit 2014 if you have not done so; and (b) Participate in Automotive Dealership Excellence Awards by sending your nominations overwhelmingly so that the awards truly represent the excellence in auto retail. The registration/nomination forms and the other details have already been sent to you and are published again elsewhere in this issue.

Another major activity of FADA, which is underway, is the study on benchmarking of practices of OEMs for retailing of passenger vehicles in India. FADA has commissioned renowned international consultancy firm, Frost & Sullivan to conduct the study. The idea of appointing an independent consultancy firm for the study is that its findings enjoy the credibility.  The objective of the study is to identify the best practices in retailing of passenger vehicles and to bring in the uniformity across all players and brands.

A 4-member delegation of FADA recently visited the Commercial Vehicle Show in Wuhan, China on the invitation of Organising Committee of the Show. The show was impressive and displayed the strength and long strides made by the Chinese automobile industry. We also visited a few automobile dealerships. What emerges loud and clear from our visit to the automobile dealerships in China is that the problems and issues facing auto retail, i.e. discounting, abnormally high stocks and inventory levels, etc. are by and large common, especially in the developed markets, across the world.

Please feel free to send your suggestions and ideas, if any, so that we can initiate and attune the activities of FADA to make them more useful and meaningful for its constituents.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 

 

Cautious Optimism

 

Dear friends,

At the outset, I express my profound thanks and gratitude to FADA council and you all for reposing your confidence in me by re-electing me as the President of this august body.  With your support, I will try my best to prove equal to the high standards set by my predecessors and rising expectations of the automobile dealer fraternity.

I look forward to working with my other colleagues in the Council and my fellow dealers spread across the country to take FADA and the auto retail to the next level.

There is no gainsaying that FADA has made long strides since its inception in 1964.  However, I do realise that a lot more needs to be done to make FADA more meaningful to its constituents and to secure due recognition for the significant contribution made by auto retail in the growth & development of automobile industry, in particular, and the national economy, in general.

To sustain the increased pace of activities and to secure the due recognition for the auto retail, it is important and necessary that FADA is further strengthened in terms of its membership base, for which I need your whole-hearted support and cooperation.

I am happy to inform that preparations for the next (8th) Auto Summit of FADA scheduled for 7th & 8th February 2014 at Hotel Le Meridien, New Delhi, are making steady headway. The theme “Auto Retail – Survival Mantra” aptly reflects the current difficult situation. My fellow automobile dealers are finding it extremely difficult to stay afloat due to acute slowdown of the market for over 18 months now. The automobile dealerships are witnessing fewer footfalls and sales volumes, leading to inventory build-up at the dealerships and causing severe stress on the viability of auto retail business. In fact, the current downturn is the worst the Indian auto market has ever witnessed. 

Needless to say, the automobile dealerships have limited elbow room to cut their costs even if they want to. While vehicle manufacturers can resort to lean manufacturing and/or reduction in their contract or temporary workforce, the dealers do not have such an option. On the contrary, the marketing efforts and discounts have to be stepped up to keep the sales ticking.

Therefore, we, in FADA, expect the manufacturers and the Government to come up with special measures to shore up the auto market and auto retail business. The automobile dealerships need to be given support by the manufacturers in terms of interest-free credit for purchasing vehicles and higher margins to stay viable in this turbulent time.

Since the situation is worse than the industry had experienced during the global financial crisis in 2008-09, the Government also needs to extend stimulus package in the form of lower excise duty, higher depreciation for CVs, and prescribing age limit for vehicles & scrappage policy.

Simultaneously, the Government needs to give a push to the infrastructure development and mining activity, which have virtually come to a grinding halt for want of policy initiatives and environmental clearances.

While there has been gloom and doom for auto market for long time, the developments, of late, are encouraging and fuel hope of recovery.

Industrial output posted a surprise rebound in July, rising 2.6% year-on-year after two consecutive months of contraction, net foreign direct investment rose 58% in April-July and deposits from expatriate Indians rose for the first time this fiscal year, pointing to green shoots of turnaround. 

Adding to the cheers, India's exports rose by 12.97% year-on-year to $ 26.136 billion in August 2013. On the other hand, imports during August this year were valued at $ 37.054 billion, representing a negative growth of 0.68% in dollar terms. The exports had returned to positive territory in July with an 11.64% growth after two months of decline. 

The trade deficit for April-August 2013-14 is estimated at $ 73.366 billion, which is lower than the deficit of $ 74.67 billion during the same period of 2012-13. This has given a relief somewhat from the worries on account of Current Account Deficit (CAD).

Another piece of good news is that the easing of Syria crisis has brought about a semblance of stability in crude oil prices in international market. The Rupee is clawing back from a low of 68 against the Dollar. The rapidly falling rupee has aggravated price pressures on crude oil and auto fuels. Sensex too is on the upswing.

It would be too early to uncork the champagne bottles but the numbers are inspiring and give rise to a cautious optimism that the worst is perhaps over for the India’s economy, hit by a slowdown in growth and sharp fluctuation in the currency. 

In the context of prolonged spell of downturn and green shoots of recovery aided by optimism arising out of good monsoon, seen of late, the upcoming Auto Summit assumes an added relevance. Auto Summit 2014 is expected to discuss the whole gamut of issues affecting India’s economy in general and auto market, in particular and to come up with new ideas and Survival Mantra for steering through this difficult phase. A wide spectrum of speakers comprising the senior Government functionaries, industry leaders, representatives of allied businesses, academia and management gurus are expected to address and interact with the participants.

Automotive Dealership Excellence Awards for the year 2013 (ADEA 2013) to the deserving winners in various categories will also be presented in the evening on 7th February 2014 and form an integral part of the Auto Summit 2014 programme. 

I am delighted to note that the Auto Summit 2014 coincides with 50 years of FADA’s journey.  As you may be aware, FADA was founded by four regional auto retail associations in 1964, late T S Santhanam of TVS Group being its Founder President. It is, therefore, an occasion to celebrate as well.

I would, therefore, appeal to my fellow dealers and others connected with auto business to register for the Auto Summit in large numbers. I am sure, it will be an unforgettable, enriching experience for all of you.

I would also request my fellow dealers to participate overwhelmingly in ADEA 2013 in order to make the awards truly representative of the best in the trade.  The nominations for ADEA 2013 are open and the application forms can be downloaded from FADA’s website – www.fada.in or ADEA’s website – adea.in.

As I mentioned in my previous columns, FADA has commissioned a study by Frost & Sulivan on benchmarking of the practices of passenger vehicle manufacturers in relation to their dealers. The study is making a steady progress. Interim findings will be presented by F&S at a meeting on October 5. I am eagerly looking forward to the presentation, as we are likely to get interesting insights into the practices of various passenger car manufacturers. The findings will be shared through the medium of this Journal in due course of time.

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

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

 

 

 

Bountiful Monsoon & Festive Season Sustaining Hope

Dear friends,

The year so far has been nothing to write home about auto market. It needs no reiteration that the auto market has been passing through the turbulent time for over 18 months. All hopes of turnaround have been belied month after month.

The sluggish economic environment did not help either.  The slowdown in GDP growth, stubborn inflation, abnormally high interest rates, volatility in fuel prices, weakening rupee and widening current account deficit (CAD) have been making headlines with alarming regularity for long time now so much so that any adverse development does not spring any surprise or shock.

The downbeat sentiment continues unabated. Inflation as measured by the wholesale price index (WPI), quickened to 6.1% in August from 5.79% in July on rising food prices, putting a damper on any hope of Repo Rate cut by RBI in its second-quarter monetary policy on 29th October.

Capping the sombre saga is the recent report that India’s factory output growth slowed to 0.6% in August after expanding 2.75% in the previous month,  suggesting that economic recovery remains tenuous. Even against the backdrop of weak economic growth, some experts expect the central bank to hike the repo rate to tame inflation. International Monetary Fund (IMF) has warned that in a number of economies, including Brazil, India and Indonesia, more monetary tightening may well be needed to address inflationary pressure.

Further, IMF has, in its World Economic Outlook report released recently, forecast that India’s economic growth would fall to 4.25% in the year to 31st March 2014, saying that the economy would continue to underperform because of regulatory, infrastructural and financing issues. IMF said robust farm production will be offset by an anaemic performance by the manufacturing and services sectors, and that the current monetary tightening will crimp domestic demand.

The Asian Development Bank on October 2 slashed its growth forecast for India to 4.7% for 2013-14 from 6% earlier. These projections are less than the government’s estimate of gross domestic product (GDP) growth of 5-5.5%. 

However, after a series of gloomy reports, the developments of late are comforting and music to our ears. 

The rain god has been bountiful with monsoon delivering 6% more rains than normal.  What is gratifying is that the monsoon has been good both in quantity and coverage, strengthening prospects of a bumper farm output that could boost farmers' earnings and fuel robust rural demand.

The effect of good monsoon has already started showing up with two-wheeler sales gathering momentum again for the last three months. Hopefully, the pick-up in two-wheeler sales is a bellwether and an indicator that the economy has bottomed out. Therefore, the time ahead looks interesting for the auto market.

The second major reason for encouragement is that the factory output looks like climbing up. In spite of tepid IIP number for August, the positive growth in July and August, albeit marginally, after two months of negative growth is welcome news nonetheless.

Thirdly, the exports are beginning to display resurgence and buoyancy.  India's exports grew 11.15% in September and imports declined 18.1%. India’s trade deficit contracted to a 30-month low of $6.7 billion in September, alleviating concerns over ballooning Current Account Deficit (CAD). The third consecutive double digit growth in exports in September is a good sign for Indian economy and will further give a fillip to export growth in the second half, as exports may clock even better result in the second half of the current fiscal touching USD 350 billion.

Fourthly, crude oil prices are stabilizing in the international market and the rupee is on a comeback trail slowly but surely. The rupee is expected to strengthen further on the back of narrowing trade gap and subsiding CAD.

Fifthly and more importantly, the long festive season has just begun with Navratras and Durga Puja. During this auspicious period, the people normally go for big-ticket spending. The fact that the farm sector is expected to grow at over 5% is an icing on the cake. The rural demand is going to have ripple effect and the consumer demand is likely to revive, which, coupled with some pick-up in investment, could bring about a turnaround hopefully. 

I am sure, while my fellow dealers are having a lot of fun and gaiety during the festivities, the pick-up in sales is going to add fervour to their merriment.

As regards, FADA’s activities, I must say that our plate is full. After having successfully concluded FADA’s 49th Annual Session on 6th September 2013, we have got down in right earnest to review the progress of four major activities in hand. 

I mentioned in my previous columns that FADA has commissioned F&S to do a study on benchmarking of practices of OEMs in regard to retail of passenger vehicles in India. I am happy to inform that F&S made a presentation on their interim findings. Though the survey is not complete, very interesting findings have emerged from the small sample analysed so far. The survey has thrown up not only some innovating ideas but has also brought out disparities in retail practices. The study is likely to be completed in December/January and the final report will be presented at the Auto Summit 2014.

Preparations for FADA’s mega biennial event, i.e. Auto Summit 2014, scheduled for 7th & 8th February 2014, are making steady headway. The Auto Summit Committee met in Delhi recently to review the progress and to give a shape to the 2-day programme, including organisational aspects and logistics. It gives me a sense of satisfaction that the preparations are on track.

Needless to say, Auto Summit 2014 that will bring together various stakeholders on a common platform, is a unique opportunity for my fellow dealers and others connected with automotive business to enrich their experiences and to get an insight into the current & emerging automotive scenario.

The Auto Summit 2014, coinciding with 50th Anniversary of FADA, is also an occasion to meet your fellow dealers from within India and across globe and the OEMs. It is an occasion to unwind, celebrate and build relations.

I would, therefore, appeal to my fellow dealers and allied business partners to register for the Auto Summit 2014 in large numbers, if they have not already done so.

The 5th edition of Automotive Dealership Excellence Awards for the year 2013 (ADEA 2013), which will form an integral part of the progamme of Auto Summit 2014, has been kicked off. Nominations for various categories of awards are open. The awards recognise and reward not only the excellence in different areas of dealership management but also the outstanding work done by the automotive dealers in CSR, social welfare and community service. The idea underlying awards for Green Initiative, Safety Initiative and CSR Initiative is to secure recognition and goodwill of the society, as no business can thrive and grow in vacuum. Please participate in these awards overwhelmingly so that they truly represent excellence in auto retail and social work.

As mentioned in my previous column, FADA has entered the 50th year of its formation. We shall be celebrating the Silver Jubilee of FADA by organising events & activities at various places in the country throughout the year. I shall welcome your ideas and suggestions in this regard.

Wishing You All A Very Happy & Prosperous Diwali,

Yours sincerely,

Mohan Himasingka

 

 

 

 

Not Much to Cheer About

Dear friends,

I shall be completing shortly one year in the office of President of FADA. It is time that we review the developments in auto market and activities of FADA during the last one year.

When I took over as the President of this august body in October last year, there was an abounding confidence that the auto market would turn around for the better soon, lukewarm vehicle sales numbers during the preceding six months notwithstanding. The robust sale volumes in October 2012 turned out to justify that optimism. However, the joy was short-lived and the market soon thereafter slipped back to the depressing mood. We have since been hoping eternally for revival of the market. It has become like chasing a Mirage. Rather, the situation has turned bad to worse by the month. 

The challenging economic environment, replete with distressing reports that are emanating with alarming regularity, is not helping either. 

What is discomforting is that the current macroeconomic indicators are not much to write home about. Current account deficit remains at worrisome levels. The Rupee is on a freefall against dollar and fuel prices continue to be volatile, making things difficult for the economy and the auto market.

A slowdown in Indian factory activity deepened in July as order books shrank by the most in over four years, suggesting a broad stagnation in the manufacturing sector. The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, edged down to 50.1 in July from 50.3 in June.

The index, which gauges business activity in Indian factories, has been running close to the 50 mark that separates growth from contraction since May. 

The Indian economy is stuck in a quagmire of low growth, persistent inflation, a wide current account deficit and a rapidly weakening currency. Policy measures to tackle any one of these will likely worsen the other factors.

While the economy grew at its slowest pace in a decade in the last fiscal year, economic data since then has suggested further pain amidst an exports slump, while the rupee has fallen to record lows.

By virtue of being a net importing country, a weakening currency quickly inflates India’s import bill leading to higher inflation and a wider current account deficit, which in turn pressures growth and the country’s foreign exchange reserves.

The Reserve Bank of India (RBI), in a bid to support the rupee, has already tightened liquidity conditions in money markets and increased short term interest rates, putting a brake on softening of interest rates.

The weakening rupee finds immediate reflection in fuel prices, which have been hiked time and again of late, despite more or less stable crude oil prices in the international market. It is disconcerting to note that oil companies again raised petrol prices by 70 paise per litre and diesel by 50 paise per litre from August 1. This is the fifth hike in petrol prices in two months, whereas diesel prices have been hiked seven times since January this year. Needless to say, volatility in fuel prices has been one of the major factors affecting the growth of auto market in India in the recent past.

Adding to the worries is that the services sector, which constitutes 60% of GDP and has been the mainstay of Indian economy amid unflattering performance of manufacturing sector, suffered a fall-off in activity for the first time in nearly two years in July, hurting chances for a recovery in growth of Indian economy. The HSBC Market Services Purchasing Managers' Index fell to 47.9 in July from 51.7 in the previous month. It is the first time since October 2011 that the Services PMI has fallen below the 50 mark. Incidentally, this headline index is the lowest since April 2009.

All these developments point to the fact that we are in for a long phase of uncertainty.

Adverting to FADA’s activities, it gives me a sense of satisfaction that while there was not much to cheer about auto market, FADA, as the apex national body of automobile dealers, continued to work with added zeal and zest for the benefit of automobile dealer fraternity and the development of auto retail in India.

While detailed Annual Report is published elsewhere in this issue, I would like to briefly touch upon here few  major activities undertaken during the year.

FADA Academy Training & Development Programme initiated last year stayed on fast track. As many as eight Dealer Competency Development Programmes were organized in different parts of India, in association with Prashaste Training Academy.

Since auto market remains subdued, it is necessary that my fellow dealers adopt cost-cutting measures to stay afloat in this challenging environment. In keeping with this objective, I am happy to say that our discussion with SBI in regard to reduction in interest rates for inventory funding and working capital of automobile dealerships resulted in a positive outcome inasmuch as SBI is not only lending at attractive rates, but is also offering incentives to the CV dealerships and their staff for selling finance on their behalf for CV purchases. We are continuing dialogue with other banks as well.

Another major activity set in motion was the commissioning of a study by renowned international consultancy firm, F&S, on benchmarking of practices of various car manufacturers in India in relation to their dealers. The idea is to identify the best practices so that these practices could be replicated uniformly across industry. The report by an independent agency will also lend credibility to the case of automobile dealer fraternity for better deal.

It is satisfying to note that the Automotive Dealership Excellence Awards (ADEA) has been steadily gaining popularity and recognition. Each successive edition has seen the growing interest and participation of my fellow dealers and industry. The 4th edition of Automotive Dealership Excellence Awards, conducted in association with Auto Monitor was a grand success and scaled new high in participation.

In view of the shrinking sales margins of automobile dealers, FADA initiated a new activity, i.e. B2B show with a view to enabling my fellow dealers to explore new business opportunities and to expand their revenue streams through tie-ups with allied business partners. Such shows will be organized at regular intervals in various parts of the country.

Rest assured, we are not resting on our laurels. There is clutch of several other new initiatives on which FADA is working and you will hear about them in due course. 

While on the subject, I would like to mention here about FADA’s two major forthcoming events.

One, 49th Annual Session of FADA is scheduled for 6th September 2013 at Shangri-La’s Hotel in New Delhi. I cordially invite my fellow dealers and others connected with automotive business to attend.

Secondly, I am happy to inform that FADA’s eagerly awaited biennial event, viz. Auto Summit 2014 will be held on 7th & 8th February 2014 at New Delhi. Commencing from the year 2000, each Auto Summit has attracted over 700 participants representing automobile dealers, industry and allied businesses from across India and rest of the world.  It is unique opportunity for members of auto retail community to meet their fellow dealers from within India and outside and share their experiences. The details are published elsewhere in this issue. I would appeal to my fellow dealers to participate overwhelmingly at the Summit not only to show your strength but also to enrich your experiences.

Before signing off, I would like to convey my profound thanks to my fellow dealers for the support and cooperation extended to me in discharge of my responsibility during the last one year. In particular, my sincere thanks and gratitude to my Vice President, fellow council members and past presidents for their guidance and advice from time to time.

I am also grateful to the Government officials at the Centre and States, as also vehicle manufacturers and allied businesses, who were always there to lend their support and responded positively in addressing the issues of concern to the retail automobile trade.

I acknowledge with gratitude the support extended to FADA by the office-bearers and officials of SIAM and other chambers including CII, FICCI, ASSOCHAM and ACMA.

Lastly but not the least, my special thanks to FADA Secretariat, who worked day and night to ensure delivery on time.

With best wishes,

Yours sincerely,

Mohan Himatsingka

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