Automotive Scenario Remains Hazy

Dear friends,

The recovery of auto market remains fragile. While the manufacturers, largely, have reported decent sales numbers during the month of November, quite a few of my fellow dealers have informed me that there is a huge inventory build-up at the dealerships. The situation at the retail level is fluid, if not gloomy.

Auto market is the reflection of Indian economy that continues to face challenging environment, despite the free fall of international crude oil prices and softening of inflation. Macroeconomic indicators are sending mixed signals. It seems that the uptick in sales volumes have largely been driven by the feel-good sentiment arising out of the formation of a strong Government at the Centre and consequent push to the Sensex.

It is not all the way a gloomy scenario, though. There are quite a few positive developments of late. The Wholesale Price Index (WPI) inflation for the month of November plunged sharply to 66-month (5 1/2 year) low of 0.0% versus 1.77% in October. This is way below an experts’ estimate of 1%. The fuel inflation for November was down (-) 4.91% versus 0.43% Month on Month. Manufacturing sector WPI came down to 2.04% versus 2.43% Month on Month. The Consumer Price Index released earlier revealed a further slowing in inflation to 4.38% in November — well below RBI's 6.0% target for Jan 2016. 

What is further comforting for the auto market is that fuel prices continue to witness steady decline. Volatile fuel prices and high interest rates, coupled with uncertainty in economy, have been the major factors dragging down the sales.

While there is a little comfort on inflation front, the real economy is yet to pick up pace as reflected in the latest IIP numbers. The Index of Industrial Production (IIP) unexpectedly contracted 4.2% in October, the worst in three years, underlining the fact that consumer sentiment and investments are yet to see a significant, tangible improvement.

Adding to the woes is that India’s external sector is also facing the heat due to the global slowdown. India's exports are lately experiencing headwinds after a heady start and the trade deficit is on the rise. The economy expanded 5.3% in the July-September quarter, slower than 5.7% in the preceding one, raising fears that recovery was faltering after two years of below-5 per cent expansion. The latest IIP numbers reinforce those concerns.

We, in auto retail business, therefore, expect the RBI to seriously consider a rate cut ahead of the next monetary policy announcement, which is due in February, with industrial production seemingly in slump and retail inflation slowing further. The RBI Governor has recently said that interest rate action alone won't lift the economy. However, why such a stimulus, for whatever it's worth, should be denied to the economy with inflation easing.

It is heartening to note that the Government has got down to the work in all earnestness and is gradually clearing the projects stuck in bureaucratic and inter-ministerial tangles. We can expect to see heightened economic activity and tangible recovery on economic front sooner than later, especially if interest rates are eased. I, therefore, remain optimistic that auto market is headed for better days in time to come.

Adverting to FADA’s activities since my previous column, as you are aware, FADA has completed 50 years of its formation in 1964. The apex national body representing the interest of auto retail business and service industry has come a long way since its humble beginning. FADA has come to be recognized as the Voice of the Automobile Dealer fraternity in India. We propose to celebrate this important milestone in FADA’s long journey by organizing a mega event sometime in March 2015. We are expecting ‘Who is who’ in the Central and State Governments, captains of industry and allied businesses and members of automobile dealer community, among others, to participate at the event in overwhelming numbers. While the event is tentatively scheduled for 20th March 2015 at Mumbai, there is a possibility that the date and venue may be readjusted depending upon the convenience of the Prime Minister, The Union Finance Minister and the Union Minister of Road Transport & Highways, who are proposed to be invited to bless the automobile dealer fraternity and to share their vision on the occasion.

The FADA’s Golden Jubilee event will be an occasion to recognize the pioneers and the game changers in automotive sector, including doyens of auto industry and auto retail business. It will also be an occasion to track important landmarks in the history of auto sector and provide crystal ball gazing into the future of auto retail business in India.

Needless to mention, Automotive Retail Trade & Service Industry is a very important link in Automotive Business Value Chain. With a current investment of Rs. 42,000 crore, having a turnover of Rs. 450,000 crore and employing over 10 lakh people directly, auto retail business is 3 times the size of rest of the organized retail. It contributes around Rs. 44,000 crore to state exchequers by way of VAT on vehicle and component sales and Rs. 35,000 crore by way of road tax, in addition to the service tax and various other levies.  

It is gratifying to note that quite a few members of FADA across the country have initiated ‘Swachch Bharat’ campaign, including use of green/recyclable material, treating waste before discharge and construction of toilets, in their respective cities/regions. Many more are going to join the campaign soon. The Golden  Jubilee event will be an occasion to reiterate our commitment to the Hon’ble Prime Minister’s ‘Swachch Bharat’ mission and showcase the work in this direction already initiated by the members of auto retail business fraternity in various parts of India.

I would urge my fellow dealers to undertake the ‘Swachch Bharat’ and ‘Clean & Green Environment’ campaign in their respective cities, if they have not already done. Those who have already joined the campaign and are contributing their mite to promote ‘Swachch Bharat’ should inform FADA of their contribution or steps taken by them so that FADA could make announcement and recognise the efforts of members of auto retail business at the Golden Jubilee Celebrations ceremony. There is no gainsaying that no business can sustain in vacuum. The business can thrive and flourish if it enjoys the goodwill of the society at large.

As a part of the Golden Jubilee Celebrations, Automotive Dealership Excellence Awards for the year 2014 (ADEA 2014), instituted by FADA jointly with Auto Monitor magazine, shall also be presented to recognize members of automobile dealer fraternity excelling in various areas of dealership management, CSR and community service.

My fellow dealers who have not sent in their nominations should apply immediately without further delay to make sure that the sample size is large enough to reflect truly the excellence in auto retail.

The entries for the current (6th) edition of awards for the year 2014 are open. This year’s awards assume special significance, as the awards presentation ceremony will be a part of FADA’s Golden Jubilee event that will be organized at a grand scale and is expected to see an unprecedented turnout that will, among others, represent the crème de la crème of the Government, industry and auto retail business. This is an event, to my mind, no automobile dealer should miss.

We, in Council, are sparing no effort to make this event a memorable for everyone. An organizing committee under the chairmanship of Mr Vinay Nevatia, Past President, has been constituted to give shape to the event.

Meanwhile, I look forward to your suggestions and inputs, if any.

Wishing You All a Very Happy & Prosperous 2015.

Yours sincerely,

K V S Prakash Rao




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