Home Car News COVID-19 forces auto dealers into drastic Cost Cutting and Layoffs

COVID-19 forces auto dealers into drastic Cost Cutting and Layoffs

Major automakers have introduced online sales platforms to boost sales without affecting dealer profits

The Indian automotive industry is making a slow recovery from COVID-19 and the two-month nationwide shutdown that was initiated towards the end of March 2020. Sales are definitely pickup up, but numbers still have a long way to go before meeting normal or pre-COVID trends. Across the globe, it did not take much time to realise that SARS-CoV-2 would extend its damage beyond the health of mankind.

Although a complete state of recovery is on the horizon, several dealerships are on the verge of going out of business; especially the ones that are not backed by a larger firm. Such dealer partners have resorted to drastic cost-cutting measures such as layoffs, shifting locations (to areas with lower rent), downsizing product portfolio or implementing new business models. It appears that ‘consolidation’ is the only way to keep smaller retail businesses running.

Prevailing struggles

Data shows that out of roughly 15,000 dealerships (all vehicle categories) operating across India, 10-15 per cent are at the risk of closure. In the beginning stages, their respective parent OEMs had stepped in with financial support. However, since most brands now have their own problems at the manufacturing level, dealerships (except maybe outlets directly run by the company) are left with very few options.

Tata car dealer
Image for reference

If we take Maruti Suzuki India Limited (MSIL), the Indian automaker is facing massive disruptions in ARENA and NEXA outlets. Its stringent dealer principles are being diluted to reduce further losses amid these challenging times. In fact, Maruti Suzuki has already shut down or surrendered a few poor-performing NEXA outlets. Rumours suggest that MSIL plans to close more outlets in the months to come. The same practice might be followed by other largescale manufacturers. Maruti Suzuki NEXA will celebrate its fifth anniversary later this month.

Added expenses

As part of the ‘new normals’, almost all businesses have opted strict sanitisation and social distancing protocols in their facilities. Even the newly formed ‘online showrooms’ offer test drives at the potential customer’s doorsteps in a safe environment. This has increased operating costs whilst sales continue to be on the lower side.

Experts state that dealerships in metros and tier 1 cities face the worst. Some of the main reasons behind this are high rents and increased wages (demanded by overwhelming living costs). At present, funds are not readily available and “lower sales per outlet have pushed up costs,” states a member of FADA (Federation of Automobile Dealers Associations).

Dealership struggles had begun even before COVID-19 hit the country. Towards April (peak of lockdown), many dealers were finding it impossible to clear off their remaining BS4 stock ahead of the shift to BS6 emission norms. The Supreme Court of India recently issued an update on this.

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