Starting Off 2015 with Renewed Hopes

Dear friends,

We start off the New Year with lots of prayers and renewed hopes that the auto market in India will regain its momentum and will be driving in fast lane very soon.

The year gone by was a mixed bag for the auto market. The year saw off one of the worst slowdowns in the history of auto market, lasting over 2 ½ years. While the vehicle sales started slowly experiencing a whiff of recovery, it did not gain traction in keeping with the expectations.

Whatever little uptick seen of late remains fragile. Though the figures released recently by the OEMs, as despatches to the dealers, look good on the face of it, there is more to it than meets the eye. Apparent good sale numbers have been bolstered by the improvement in sentiment in the wake of a strong, decisive Government at the Centre and the year-end freebies & discounts offered by the manufacturers. Above all, the most important trigger for uptick in sales has been the lower vehicle prices due to the excise duty sops announced in the interim union budget of 2014, which were extended by the current Central Government up to December 2014.

It is disconcerting to note that the softer excise duty regime, introduced in the previous interim Budget and extended by the present Government in June 2014 to give impetus to the flagging automotive sector, is not being further continued.

Green shoots of recovery are yet to fructify into a sustainable growth momentum as indicated by the retail sales performance of the automotive market in the recent months. The automobile dealerships are saddled with huge stocks of vehicles, suggesting that the auto market continues to struggle, the decent wholesale numbers notwithstanding.

Withdrawal of stimulus at this critical stage, especially when the interest rates continue to be high and the economy is yet to show resurgence at the ground level, is likely to lead to the automotive market relapsing deep into the negative terrain, resulting in further loss of employment and revenue to the Central & State Governments. The sales of mass segment vehicles, as also the commercial vehicles, in particular, are likely to take a hit as a result of the increase in prices from January 2015, dampening any hope of early recovery. Discontinuation of softer excise duty regime comes as a double whammy, as the manufacturers had announced varying degrees of price increase effective January as a result of rise in input costs.

We, in FADA, therefore, appeal to the Hon’ble Finance Minister that the excise duty sops for the automotive sector may kindly be continued for a further period of one year.

All said and done, the members of automobile dealer fraternity are not giving up on hope, which is reinforced by the recent internal and external developments.

Inflation that has been the bane of the slowdown in economy, in general, and auto market, in particular, has been on downward spiral for some time. Commodity prices, especially petroleum prices, are witnessing free fall, alleviating somewhat worries on account of Current Account Deficit and subsidy burden. 

The factory output that remained lacklustre last year is showing a semblance of rebound. India's manufacturing PMI rose to a two-year high of 54.5 in December 2014, while in the corresponding period a year ago it stood at 50.7, just above the crucial 50 mark which separates growth from contraction. Overall, the PMI data suggest a gradual expansion in the manufacturing sector.

Likewise, according to the data released by the Government recently, eight core industries, which have a combined weight of 37.9 per cent in the Index of Industrial Production (IIP), grew by 6.7 per cent in November 2014, which finds reflection in the IIP for the month released later.

Though macroeconomic indicators are showing a marked improvement in India’s economic environment, the inflation, particularly the food inflation, has started rearing its ugly head again, which is a cause of worry. Since the food inflation is essentially on account of demand-supply mismatch, RBI Governor, as a pleasant surprise, has taken a step in the right direction, slashing Repo rate by 25 bps, which, I feel, will go a long way in boosting the investment in industrial, construction, infrastructure development and other economic activities. As such, we, in FADA, look forward to better days ahead for the India auto market.

Adverting to FADA’s activities since my previous column, I am happy to inform that the preparations for the FADA’s Golden Jubilee and Automotive Dealership Excellence Awards presentation function scheduled for March 2015 in Mumbai have picked up steam. Though I have personally not been able to devote time for a few days due to the bereavement in our family, I find a lot of enthusiasm amongst my colleagues in the Council, who have been assigned various responsibilities and tasks to give shape to this mega event.

For FADA, there cannot be any bigger occasion than celebrating 50 years of auto retail in India. It will give us an opportunity to thank and salute the doyens of auto industry and retail trade, who made painstaking efforts to build a world class auto industry and spearheaded all-round excellence in auto retail practices in India. This is also an occasion to reflect and gear for the challenges ahead.

Needless to mention, auto retail and service industry plays a very important role in the national and state economies, be it employment generation, contribution to the GDP or revenue collections of the Central & State Governments by way of various forms of taxes and levies on motor vehicles. Auto retail is 3 times the size of the rest of the organized retail. Its spin-off effect on other allied business, such as finance, insurance, fuel & lube retailing, etc. needs no overemphasis. Therefore, auto retail ought to receive the attention and recognition deserving of its contribution.

The second important activity that is engaging our attention at present is the Automotive Dealership Excellence Awards for the year 2014 (ADEA 2014). ADEA 2014 assumes added significance, as the awards presentation ceremony has been dovetailed with FADA’s Golden Jubilee Celebration event.

Entries for the ADEA 2014 are open. My fellow dealers who have not sent in their applications for ADEA 2014 are requested to do so immediately. I urge my fellow dealers to participate in FADA’s Golden Jubilee Celebrations event and ADEA 2014 in large numbers to display your strength and contribution. We are expecting ‘who is who’ of the Government and the industry to grace the occasion. Therefore, it is all the more important for you to be the part of this special occasion.

With a view to engaging with our fellow dealers in South India, I along with Nikunj Sanghi - our Past President, visited Bangalore, Coimbatore and Cochin in the month December. The response was encouraging with Dealer Principals expressing their interest in being a part of FADA. My special thanks to our council members - Naveen Sarawgi and C S Vigneswar, as also our Vice President - John Paul, for extending their support in organising meetings with the Dealer Principals in these locations. 

We also had the privilege of spending time with Annamalais Toyota in Coimbatore as well as Nippon Toyota and Popular Maruti in Kochi. We were impressed with the process centricity in each of these dealerships. What caught our attention was the training facilities available in each of these dealerships and the professional approach with which training is being imparted to address the trained manpower needs of the automobile dealerships. It is worth emulating!

Let us all resolve to further energise FADA and reach out to more friends in automobile dealer fraternity. Together, we can take FADA and auto retail business to new heights.

Your views, inputs and suggestions are welcome.

Yours sincerely,

K V S Prakash Rao

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