Spate of high-profile exits in recent years has significantly impacted dealer and consumer confidence
With many Ford dealers pointing to lack of transparency in compensation and ambiguity over future operations, FADA has taken up the matter with the Ministry of Heavy Industries. FADA’s concerns are not just limited to Ford. They apply to an industry-wide phenomenon that is creating significant challenges for dealers.
Sudden exits by auto companies are resulting in investment losses running into hundreds of crores. Furthermore, thousands of people are losing jobs. Customers are also deeply impacted, as they may have to struggle for service and parts for their car. Resale value of such cars would probably be adversely impacted as well.
2,485 crore loss since 2017
To explain the gravity of the situation, FADA has tabulated overall losses incurred by dealers since 2017. The data covers exits by Man Trucks, UM & Lohia, General Motors, Harley-Davidson and Ford India. The highest investment loss is for Ford dealers at Rs 2,000 crore. Around 40,000 jobs have also been impacted due to Ford exit. Overall, 64,000 jobs have been impacted due to these exits.
Assault on entrepreneurial spirit
FADA has pointed out that majority of dealerships comprise family owned small to mid-sized businesses and partnership firms. Many dealers enter the auto trade business by investing their entire savings. Even when they make long-term investment, current industry norms dictate dealerships agreements to be functional on a yearly basis. If an OEM makes a sudden exit, dealers are faced with significant hardships.
In case of Ford, FADA has pointed out to potential loopholes in the Non-Disclosure Agreement (NDA) that dealers have been asked to sign. According to FADA, the NDA does not provide exact details on various types of losses incurred by dealers and their respective compensation amount.
Concerns have been raised about various losses such as idle establishment and infrastructure, employee retrenchment, maintenance, loss of business opportunity, transitioning from sales to service and parts business, adverse impact on goodwill and reputation and cost of launching a new venture.
Key requests by FADA
In view of these ambiguities, FADA has requested the government to set up a task force that can monitor discussions related to compensation package for Ford dealers. It has been requested that FADA be kept in the loop for all such discussions between Ford and its dealers. FADA also wants Ford India to provide indemnity to its dealers against civil and consumer cases that may be there or may come up in the future due to the company’s restructuring decision.
From an industry perspective, FADA has requested the government to initiate discussion on Automobile Dealers’ Protection Act. Such legislation has already been proposed by Parliamentary Committee on Commerce and Industry in Report No.303. Such an act has become all the more important, as a number of new auto companies including international players are launching operations in the country. FADA feels that relevant laws will safeguard dealer and consumer interests and help prevent job losses.