With the ongoing lockdown, auto sales have hit an all-time low. And it is unlikely to improve by much considering the economic slowdown and the low customer sentiment in regards to new vehicle purchase
Even before automobile manufacturers released the sales numbers for March 2020, it was known that the sales charts aren’t going to paint a pretty picture. Further to the slowdown, the automotive sector has been experiencing over the past year or so, the coronavirus lockdown that commenced from 22nd March, only made things worse. And now that the government has announced an extension till 3rd May, sales projections for April are likely to go down further.
In light of the situation, the Federation of Automobile Dealers Association (FADA) has written to the Prime Minister pressing him to offer relief. In his letter addressed to the PM Narendra Modi, Ashish Harsharaj Kale President FADA wrote, “A new normal growth rate is going to be set, post the COVID-19 which is projected to be far lower than the normal, under which we have been operating in recent times. SIAM has Projected that the country will witness a huge drop in auto sales which could be as high as 35% for some segments. This is over and above the 18% de-Growth of FY20.”
The letter from FADA suggested that the government provide relief in the following ways:
1.) With cash flows going down, FADA requested working capital support along with 4% interest subvention or subsidy for 9 months post lockdown and lastly, 20% additional overdraft for the next six months.
2.) For the duration of the lockdown, FADA also urged the government that the salaries of employees should be paid Employees State Insurance Corporation (ESIC).
3.) FADA also requested that all Wholesale and Retail trade and repair of motor vehicles and two-wheelers be given MSME (Micro, Small and Medium Enterprises) status. This will provide subsidies to the dealerships and thereby aid in maintaining employment.
While all the aforementioned suggestions are to ease the pressure on dealerships during this time of crisis, FADA also recommended some relief solutions to increase the demand for vehicles.
1.) A reduction in GST on vehicle purchases may be a good incentive to create demand. A reduction in the interest rate by 3-4% from Banks and NBFCs can also lure customers in.
2.) Extending benefits such as Corporate Depreciation Scheme to individuals and continue it for another year.
3.) In addition, FADA also requested for an incentive based scrappage policy. Furthermore, the letter also appealed the automotive sector be given ‘Priority Sector’ tag too, which will ease, both retail and wholesale financing.
The letter read, “Over the years auto dealership business model has come under severe strain with increasing costs and low operating margins thereby reducing our sustenance towards any such shocks as this current Corona situation and it's after effects. While we are taking it up with SIAM at a complete change of the business model to build up sustenance for the after effects of COVID-19 and for any future disruptions, the immediate situation is extremely bleak if not supported.”
Automotive dealerships and service centres provide employment to over 40 lakh people across the country – 25 lakh direct employees and 15 lakh indirectly dependent on dealerships. An impact on automotive sales not only has an effect on employees at the factory but also has compounding ramifications to dealerships and their employees as well.