Buoyancy Remains Elusive

Dear friends,

The new financial year has made its advent. While the year gone by was a dream turned sour, the FY 2013-14 has not begun on an auspicious note either. The sales figures for the month of April are not something to rave about. We have been eternally hoping that the buoyancy would return to auto market soon.  However, it is turning out to be a mirage.

To add to the worries of auto market is the fact that the economy, by and large, remains sluggish and is not showing signs of picking up any time soon.

Indian services growth eased dramatically during April as new orders came in at a much slower pace. HSBC Services Purchasing Managers' Index, based on a survey of around 400 companies, fell to 50.7 in April, its lowest since October 2011 and the weakest reading in the current expansion cycle. The index had stood at 51.4 in March. 

It was the third straight month of decline, and took the index dangerously close to the 50 mark that separates growth from contraction. 

Services currently make up almost 60 per cent of India’s economy and a slowdown does not augur well for the country, coming, as it did, after the manufacturing PMI released earlier showed that manufacturing activity had also lost steam. 

However, it is not a gloomy scenario all the way.  A number of reports and developments, of late, inspire the confidence that the economy and, for that matter, the auto market are likely to claw back to the high growth path in the second half of the current fiscal. 

Of many positive developments in the recent past, the good news is that inflation pressures are ebbing off slowly. WPI for the month of March 2013 climbed down to over three-year low of 5.96%. As I write this message, India's headline inflation has eased further for a third straight month to 4.89% in April, as core inflation cooled and fuel costs fell. 

The ripple effect of cooling inflation is that the central bank has reduced the Repo Rate by 25 bps to 7.25% in its last policy review. With the inflation falling within the RBI’s comfort zone of 5%, we expect that the central bank will come up with further cuts in key policy rates soon. RBI remains cautious and wary about the resurgence of inflation, though.

It is worth noting that the RBI began cutting interest rates in April 2012. The Repo rate has been cut by 75 bps in the year 2013 so far. But that easing has done little to spur significant reduction in interest rates at the retail level or to give fillip to the demand. We hope that the banks would take a cue and reduce the interest rates on retail loans to boost demand.

Another piece of good news is that the commodity and raw material prices, including crude oil prices, internationally are witnessing downward trend. We welcome the recent cut in petrol prices by Rs. 3, as the soaring fuel prices, coupled with economic uncertainty, inflation and high interest rates, have been the major triggers for the fall in demand.

Thirdly, India’s exports, after having been in a free-fall mode during the major part of the previous financial year, are gathering momentum again, allaying the fears of unmanageable widening CAD.

Fourthly, Index of Industrial Production has, of late, shown a semblance of stability and upward movement slowly but surely. The 2.5% growth in the Index of Industrial Production (IIP) in March – a huge reversal from the negative 2.8% growth of March 2012 – shows that the economy is probably turning around. Capital goods production, a barometer for investments in the economy, grew an annual 6.9% from a year earlier. This is the first real green shoot that is noteworthy. Comparatively better growth rate for March ensured that IIP for the year 2012-13 expanded by 1% y-o-y.

All said and done, I remain optimistic that the current downturn phase of auto market, which has really lasted longer than expected, will blow over soon.

Adverting to FADA’s activities since my previous message, I am delighted to inform that FADA Academy’s ongoing training & development programme, being conducted in association with Prashaste Training Academy, has evoked overwhelming response. Four programmes organised recently at Hyderabad, Pune, Patna and Kochi were very well attended, and witnessed enthusiastic participation. Four more programmes are planned in May & June – at Delhi, Mumbai, Vijayawada and Bhubaneswar. The requests are pouring in from members in other parts for organising the programme in their cities.

I am happy to inform that a study on benchmarking of practices of car manufacturers in India in relation to their dealers to be conducted by Frost & Sullivan on behalf of FADA has got off the ground. A formal agreement with F&S in this regard has been signed. I am sure that my fellow dealers, on being approached by F&S, will give their free and frank inputs and opinion to make the study really meaningful.

As I have said on several occasions, the associations of automobile dealers at the local, State and regional levels are important link between FADA and its members spread all over India.  You will kindly appreciate that it is well nigh impossible for the office bearers to visit each and every city and town to meet and interact with members. I, therefore, feel that the local/regional associations of automobile dealers must be nurtured and strengthened. 

While most of the issues are localised and state-centric, FADA is more than willing to pitch in with its support on issues having national ramifications. FADA is also ever willing to share with the local/regional associations, the legal position, practices and policies obtaining in other States for resolution of the issues in their proper perspective at the State level.

It is good to see that the local/regional associations are becoming more active of late and working with zeal and zest to address the problems faced by the members of auto retail business in a concerted and coordinated manner. The sustained and concerted effort being made by the Automobile Traders Association Delhi in resolving the issues, including court cases, with regard to the implementation of High Security Registration Plate and logistics/handling charges levied by the dealers, is commendable. It would have been extremely difficult for the automobile dealers to fight the court cases and to take on the might of NGO’s and authorities individually. My kudos to Mr Raj Chopra, President, ATAD and his team for the spirit of fellowship displayed by the Association.

It is equally heartening to note that my fellow dealers in Indore have formed an association, viz. Association of Automobile Dealers Indore (AADI). Much as I would have liked to join, I could not attend, due to pressing personal reasons, the inaugural function of AADI held on 18th April 2013 at which the Transport Commissioner of MP was also present.  This would have given me an opportunty to  know the issues affecting the auto retail at the local/state level and to get a valuable feedback on the activities of FADA. 

I would appeal again to my fellow dealers that they must organise themselves at the city and State levels and hold regular meetings. Such regular meetings and interactions among automobile dealers help in identifying the issues of common concern for appropriate concerted action. The meetings also bring forth the good practices being followed by some of the dealers, which could be replicated by others. On the other hand, regular interactions and dialogue with the concerned authorities in the State at the level of association give rise to better understanding and appreciation of each other’s concerns, which may not be the case if the problems and issues are taken up individually by the dealers.

FADA Council will be holding its next meeting at Bhubaneswar on 21st & 22nd June 2013. A B2B Show similar to the one held at Mumbai and a training programme are also proposed to be dovetailed with the Council Meeting. I am eagerly looking forward to the Council Meeting, as there are a lot of new ideas and initiatives that will come up for discussion.

I would like to reassure that we are not resting on our laurels and are working wholeheartedly to clear the roadblocks for the auto retail business to flourish and prosper.

I look forward to your valuable inputs and suggestions.

Wth best wishes,

Yours sincerely,

Mohan Himatsingka

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