The Indian passenger vehicle industry reported its worst ever performance in five years; in the past fiscal. Reasons cited are volatility in fuel prices, significant increase in insurance costs, lack of financing and low liquidity levels.
The scenario, where manufacturers are concerned is somewhat promising with new models being planned poised for launch. However, it is an altogether different story where company dealerships are concerned, with an average of two vehicle dealerships shutting shop every week for the past two years, reveals Economic Times.
Industry experts surmise that there are around 15,000 authorized dealer principals who manage over 25,000 sales points across the country. Out of these, there are only 30 percent which are profitable and that too, some dealerships see earnings in the range of 1-2 percent. On an average, the dealers in India are surviving on margins ranging from 2.5 to 5 percent as against an 8-12 percent margin earned by dealers globally.
Dealers also have to contend with increase in investment, rising manpower costs, expansion plans, low liquidity and high cost of funding. Dealerships also have to stock a range of models, some of which are low selling. Vehicle sales are also at an all time low as in the urban areas, shared mobility like cab services have resulted in the slowdown in demand.
The closure of these company dealerships, that is happening at an alarming pace, has led to losses to the tune of Rs.2,000 crores. 205 dealer partners have shut down operations, resulting in shutting down of more than 300 outlets across India. Job losses resulting due to this is 3,000. This is not only seen in the case of four wheeler dealerships but also across the two wheeler segment.
The impact of GST is also felt across the industry. Prior to its implementation in July 2017, dealers had a couple of months to pay sales tax and VAT. However, now they have to file GST returns on the same month as billing, which affects working capital to a great extent. While the impact is more on dealers in larger cities and metros, the impact is not so great on dealerships in rural areas.
The impact can be gauged in the case of Nissan and Hyundai. They have been impacted the most. 38 Nissan dealers and 23 Hyundai dealers have shut down in the past two years. Dealers of other automakers such as Maruti Suzuki, Mahindra, Tata Motors and Honda Cars have also seen 9-12 dealerships shutting shop. Most of these dealers are in the states of Maharashtra and Bihar wherein 56 and 26 have shutdown as compared to 19 dealers in Kerala and Rajasthan.