As the possibility of an extended lockdown period looms, auto dealers in the country will see earnings drop to zero and many of them will risk potential closure. The Federation of Automobile Dealers associations (FADA) has written to the Prime Minister seeking immediate relief to run the business and boost demand, as they estimate growth in the industry in the coming months falls to a bleak, new normal.
Representing 15,000 auto dealers with over 25,000 dealerships in the country, the Federation of Automobile Dealers' Association of India has asked the Prime Minister for a series of support measures to support the industry as the COVID-19 lockdown leads to virtually no business for auto dealers.
"Automobile sales being discretionary in nature will take a definite hit", Ashish Kale, President, FADA told CNBC-TV18, adding," That's why we have asked for relief both in terms of supporting the business and reviving demand".
The dealership fraternity is seeking working capital support from the government as cash flows drop steadily. To that extent, FADA has asked for a 20 percent additional overdraft on the sanctioned limits from banks and NBFCs for a period of six months after the lockdown is lifted. These limits will be utilised for meeting the business's fixed costs and salary disbursal requirements.
The industry is also seeking that its proposal before the Micro, Small and Medium Enterprises (MSME) ministry for the inclusion of auto wholesale and retail business to be included in the sector be fast-tracked. FADA reasons that many dealerships are small-scale family-run businesses which encourage local employment, and should, therefore, be considered MSME units.
Having MSME status will significantly reduce operating costs for auto dealers, as they will be entitled to avail of reduced interest rates and other incentives.
Another proposal that the FADA is batting for is for salaries to be paid through ESIC during the lockdown period and liabilities to be covered under Employees' State Insurance.
Demand Boosters
FADA expects that the post-pandemic scenario will dent consumer sentiment further, and confidence spending will take a hit. After a prolonged 15-month slowdown, the sector will see a new rate of growth which will further undershoot an already bad year.
To revive demand, FADA has reiterated its demand for a reduction in the GST rate on automobiles from over 28 percent currently to 18 percent. Alternatively, a direct benefit to the consumer in the form of a lower interest rate from banks and NBFCs to lower the cost of acquisition of a vehicle may also bring back some demand, according to FADA.
The sector is once again doubling down on its demand for an incentive-based scrappage policy to trigger replacement demand. An attractive cash benefit for old, end-of-life vehicles works especially well in an economic downturn and fast-tracks demand for new vehicles, FADA said.
More than 275 dealerships shut shop over the last 15 months, according to the Association, and more livelihoods will likely be lost if these measures are not implemented soon. The dealership network employs 40 lakh direct and indirect workers. Auto sales in FY20 fell 18 percent YoY.
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