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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