Uncertainty is Back to Haunt Auto Market

Dear friends,

Hope, you celebrated the festival of lights – Diwali and other festivals, with traditional fervour, gaiety and solemnity associated with them.  

It is somewhat disconcerting to note that the sustained recovery of the auto market remains illusory. Having started off on the promising note and after five straight months of growth since May this year, the passenger vehicle sales during the month of October have been dampener. Two-Wheelers have also hit the bump, putting brakes on their impressive run over time. The tepid sales during this festive season this year  and, coming as it does, on the heels of equally lacklustre performance last year, is particularly a cause of worry, signalling that the economy is yet to gain traction.

Despite the buoyant sentiment in the wake of the formation of a stable & perceived decisive Government at the centre, the growth of economy remains sluggish and the uncertainty continues to dog the business and the consumers. The National Council of Applied Economic Research (NCAER) has lowered India's GDP growth forecast to 5.0% cent in the current financial year on weak macroeconomic fundamentals. NCAER had earlier suggested that the Indian economy was likely to grow at 5.7% in 2014-15. 

The pace of growth in the service sector has been slow. The bank credit to the business and industry has not picked up pace. Adding to this is the continuing slowdown in the global economy, except for the United States, which shows little prospects of surge for the external sector. This is borne out by the latest data of India’s merchandise exports during the month of October 2014, which declined by 5.0% y-o-y.

After showing promise, the growth of industrial sector, manufacturing in particular, has been tapering off lately. The Index of Industrial Production (IIP) dropped to a 5-month low of 0.4% y-o-y in August 2014 from 0.5% in the previous month. The below par performance of industrial output growth over two successive months indicates the fragility of India's industrial recovery. 

However, all said and done, there are straws in the wind, which inspire confidence. The good news is that the crude oil prices in the international market are on downward spiral. Another piece of good news is that the inflation is gradually climbing down and that the FDI inflows have witnessed upswing of late. The moderation in fuel and food prices, in particular, is enthusing. The deregulation of diesel prices leaves the Government and the apex bank with more policy space. The move will ease the Centre’s subsidy burden and, thereby, help narrow the country’s fiscal deficit. 

While we are hopeful that the RBI will cut the interest rates in view of the moderating inflation, quite a few analysts remain wary of the lowering of the cost of borrowing by the central bank in the near future. That is because of poor & erratic monsoon rains that could affect crops and drive food prices back up. In addition, continuing geopolitical tensions could also see oil prices spiking up again.

There is no gainsaying that the fate of auto market is closely linked with the pace of growth in economy and industry. This is reflected in the fact that despite improvement in the sentiment and the uptick in Sensex as a result, the auto market is yet to gather momentum. 

With a stable Government at the Centre, which is striving to give a big push to the infrastructure and manufacturing with its ‘Make in India’ campaign, I am sanguine that the Indian economy will soon be on a high-growth trajectory, enabling the auto market in India to thrive and flourish again. The drop in diesel prices augurs well for the commercial vehicle segment, which has been going through a prolonged slump. 

The experience worldwide shows that the automotive industry is the engine of growth. The stage of development of auto industry in a country is the index of economic development of that country. It plays an important role in country’s industrial development as well as technology & processes upgradation. Due to its deep forward and backward linkages, the auto industry has a strong multiplier effect on other sectors. 

Automobile retail trade is a vital cog in automotive business value chain and its spin-off on insurance, finance, banking, lube and oil sectors cannot be overemphasised. Automobile dealerships play a pivotal role in building the nation. As elsewhere in the world, auto retail business in India contributes significantly to the central & state exchequers in various forms of taxes & levies, in addition to employing over 8 lakh people directly.

Adverting to the FADA’s activities since my previous message, I am happy to inform that a training programme on Effective Management of Auto Dealership was held during the first week of November in Patna under the aegis of FADA Academy, in association with Prashaste Training Academy. FADA intends to organise such programmes throughout the country at more frequent intervals. Any member keen in having the training programme organised in his/her city/town may kindly get in touch me directly or with the FADA Secretariat. FADA will extend all possible support.

As you are aware, FADA has completed 50 years since its inception in 1964. In tandem with the growth and changing paradigm of auto retail business in India, FADA has also kept the pace and evolved over the years, thanks to the vision and dynamism of my predecessors and successive councils. However, you may rest assured, we are not resting on our laurels. A number of new initiatives are on the anvil.

We propose to celebrate the Golden Jubilee Year of FADA by organising a mega event sometime in the first half of March 2015. It will not merely be an occasion to celebrate but also to honour the pioneers of auto industry and retail trade. 

I would appeal to my fellow dealers and others connected with automotive business to participate and be part of this grand and solemn occasion.

The Golden Jubilee Celebration event will be clubbed with the Automotive Dealership Excellence Awards (ADEA) presentation ceremony. This edition of ADEA, viz. ADEA 2014 assumes special significance, as it will be a part of the 50th Year celebrations of FADA.  Entries for the ADEA 2014 are open. My request to my fellow dealers is that they should come forward and send in their applications in large numbers to make the awards truly representative of excellence in auto retail. The objective underlying these awards, instituted jointly by FADA and Auto Monitor in 2009, is to bring to the fore the best auto retail practices and the social & community welfare activities of automobile dealers across the country.

I had mentioned in my previous message about the devastation caused by the cyclone Hudhud in Visakahapatnam and neighbouring areas. A large number of automobile dealerships, including mine, were damaged by the cyclone. With urbanisation and climatic changes taking place, there is going to be higher probability and frequency of natural disasters, such as earthquakes and cyclones in future. It would be good if our fellow dealers can share their ideas and suggestions to make the dealership facilities resistant to these natural disasters. Or else, they could suggest some experts in the structure design in the country for the information of their fellow dealers.

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

With best wishes,

Yours sincerely,

KVS Prakash Rao




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