Persisting Uncertainty a Cause of Worry

Dear friends,

A series of unflattering developments in the recent past are not what we had bargained for. These reports have put a damper on our hopes of early recovery of the auto market.

The industrial production growth slipped to 2 per cent in April 2013. While the factory output remained on a positive growth trajectory for the fourth consecutive month, the April growth rate is hardly any consolation considering the low base of April 2012. 

A major cause of worry for all of us is the volatility in the dollar-rupee exchange rate. The rupee touched a record low of 60.00 per dollar during intra-day trading on June 20, before closing at 59.57. The rupee has depreciated by more than 8% in the last few days, and is still hovering dangerously close to 60.00 against dollar. The sharp devaluation of rupee has serious consequences for the Indian economy that had been showing some stability of late. 

The weak rupee is likely to widen the current account deficit that is already at worrisome level. Secondly, it will likely impact prices, slowing down, if not reversing, the easing of inflation. These two unseemly situations limit the RBI’s headroom for further cut in policy rates. As a result, softening of interest rates, on which auto market has been pinning its hopes, may not come about anytime soon. On the other hand, all-round increase in prices as a result of costlier imports will spell further uncertainty and make the people keep the big-ticket spending, including vehicle purchases, on hold. The depreciation in rupee value has already started casting its shadow on the fuel prices. While international fuel prices are more or less stable, fuel prices in India are on the rise again due to devaluation of rupee.

However, it is not an out-and-out gloom and doom scenario. Timely arrival of Monsoon and its steady progress across major part of India is encouraging and rekindles hope that the current bad patch may be a thing of the past soon, particularly, since the retail inflation is largely fuelled by the food items. The annual monsoon rains are crucial for the 55% of farmland without irrigation in India. It is essentially the rural income, which propels the growth of auto market.

Secondly, for all the worries among investors and policymakers over the rupee's sudden plunge to record lows, the economy is in better shape to handle depreciation and to absorb shock today than it was when the currency last hit the buffers a year ago.

Inflation is falling, albeit moderately. Wholesale Price Index (WPI) has been on steady decline for some time and eased to 4.7% in May 2013 from 4.89% in April 2013. The retail inflation is still sitting at an uncomfortable level of 9.31% and remains a concern, though. Lower oil and gold prices are helping narrow a current account deficit that reached an alarming 5.1% of gross national product last fiscal year. And, exports are slowly and steadily showing uptick. The slowdown that resulted in decade-low growth of 5% in the previous fiscal year appears to have bottomed out, helped in part by some modest RBI interest rate cuts and the government's reforms aimed at boosting capital inflows.

Above all, the global rating agency Fitch Ratings has offered India relief from a flood of bad tidings—a depreciating rupee, weak factory output data and sticky retail inflation—by upgrading the country’s sovereign credit outlook to stable from negative.

The news is all the more savoury, as the revision comes within a month of Standard & Poor’s warning that there was a one-in-three chance of a downgrade in the country’s sovereign rating to junk status in the next 12 months. Now, with the upgrade by Fitch, we shall, hopefully, see a revival in business confidence and investments in the near future. 

Regarding activities of FADA since my last message, FADA’s training programme in association with Prashaste Training Academy has been progressing well since its launch in February this year. Six programmes have been organised so far at Hyderabad, Pune, Patna, Kochi, New Delhi and Bangalore, respectively. I am happy to note that the programmes witnessed enthusiastic participation. In today’s fiercely competitive environment, the importance of training & development cannot be overemphasised. The dynamics of auto retail are changing alarmingly at fast pace. As a result, the old management techniques and tools are losing their relevance by the day. These programmes aim at improving efficiency, productivity and profitability, at the same time equipping automobile dealers to stand up to the current & emerging challenges.

Needless to say, profitability of automobile dealerships remains the chief concern of FADA in the context of ever growing manpower, marketing and inventory holding costs, on one hand, and the shrinking or, at best, the static sales margins, on the other.

While appropriate sales margins for automobile dealers commensurate with the increasing costs is engaging our attention and continues to be high on FADA’s agenda, we are simultaneously working to identify additional business opportunities and revenue streams for the auto retail business. On being taken up by FADA, State Bank has already reduced rate of interest on working capital and has started giving commercial vehicle dealers commission on sale of finance. We are also following up with other banks. 

Simultaneously, we are also in regular touch with the insurance companies, as motor insurance and other insurance products have become significant components in an automobile dealership’s revenue model. FADA’s tie-up with IndiaFirst Life Insurance Company for promoting the AutoLife is the case in point. AutoLife is not only a CSR activity inasmuch as it promotes road safety and proper road behaviour, but is also a business opportunity for my fellow dealers. FADA is taking this tie-up to the next level, with the launch of another product from IndiaFirst, namely ‘AutoHealth’. The launch will coincide with FADA’s Council meeting, on 6th July 2013 at New Delhi. Hopefully, my fellow dealers will tie up with IndiaFirst and add another revenue stream to their business, as many of my fellow dealers across the country have already done by joining hands with IndiaFirst for ‘AutoLife’.

With the falling walk-ins in the showrooms and growing online searches for automobile dealers on Google, Bing and Yahoo during the vehicle buying process, it is very essential today for every dealer member to have presence both on web and mobile for selling and servicing of vehicles. 

For the benefit of our members, FADA has entered into an agreement with Carazoo Online Solutions, a leader and pioneer in this space with more than 120 dealers as their clients across brands and regions. They offer websites (virtual showrooms), mobile sites, online marketing services, live chat solutions, etc, at a special price to FADA members. I hope, my fellow dealers are making the most of this partnership.

Another route to identify and tap allied business opportunities, adopted by FADA, is to organise B2B shows at regular intervals across the country. The first B2B show organised at Mumbai in March was a tremendous success and the participants went back with a lot of food for thought.

This is not all. Many more initiatives are on the anvil. You will be hearing about them, as we move along.

We have scheduled a Council Meeting and a Regional Meeting at Shangri-La’s Hotel, New Delhi on 6th July 2013.  I cordially invite my fellow dealers to attend the Regional Meeting that will commence at 7.00 p.m.

I am eagerly looking forward to the Council Meeting, as it is being held after a gap of 3 months. We have a long agenda, including Annual Accounts, ADEA 2013, B2B shows and FADA’s much-awaited Auto Summit 2014, for consideration.

It needs no reiteration that Auto Summit, started in 2000, has become a mega biennial event of FADA. The Auto Summit brings together the Government, manufacturers, dealers, vehicle users, management gurus, experts and analysts on a common platform. It is also an opportunity for members of automobile dealer fraternity to meet and share their experiences with fellow dealers from other parts of India and globe.  The Auto Summit 2014 is likely to be held during Auto Expo in the first half of February 2014 at New Delhi. Automotive Dealership Excellence Awards for the year 2013 (ADEA 2013), instituted by FADA jointly with Auto Monitor to recognise and reward standout dealerships, will also be dovetailed with the Auto Summit. We shall be coming out with the announcement of the schedule and programme in due course. As in the past, I am expecting overwhelming response and participation of my fellow dealers at the Auto Summit 2014 and ADEA 2013. It is an occasion not to be missed.

Please feel free to send your valuable feedback and suggestions.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

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