India’s COVID-19 lockdown protocols have left automotive dealerships with massive losses
As the country inches towards the end of its 21-day lockdown protocol to fight against the spread of COVID-19 and thereby ‘flatten the curve’, many businesses are left with immense losses. If we look at India’s automotive industry alone, daily losses sum up to around a thousand crores.
Many dealerships are at the verge of going out of business forever but parent OEMs have started lending adequate support to prevent such a scenario. Hero MotoCorp was the first two-wheeler brand to do so. Dealers of Bajaj, Honda, Royal Enfield, Yamaha, Suzuki, etc are also facing a lot of problems.
A recent study states that two-wheeler sales in India might decline in double-digit rates in FY 2021. In other words, the effect of COVID-19 will hover over the automotive industry even if the virus is completely wiped out from the country. Two wheeler sales are expected to be down by 20 lakh to 21 lakh this fiscal year, to about 1.8 crore units.
At this point, the best way to slow down the spread is to extend the lockdown until total control is attained. However, the practicality of such a move still holds a lot of uncertainty as many firms and organisations are eagerly looking forward to returning to their daily operations.
Even before the lockdown, demand for two-wheelers was falling at a steep rate since potential buyers were waiting for BS6-compliant models. Government norms had mandated that no BS4 vehicle would be deemed legal in the country after 31 March 2020. The apex court recently shifted this deadline on a conditional basis but it will not do much help to struggling dealerships with leftover BS4 products. A recent data proved that unsold BS4 scooters and motorcycles accounted to around Rs 2,500 crore.
As per law, dealerships with BS4 units post lockdown have three choices: (1) register and sell them as used vehicles, (2) consult parent OEM for a buyback, or (3) send the vehicles for scrapping by following proper guidelines. Out of these, option (2) is the most feasible choice for dealers but OEMs are also economically weak to support it.
Shamsher Dewan, Vice President of ICRA (Information and Credit Rating Agency), shares that two-wheeler brands should expect another year of poor sales and operating margins. Furthermore, extra spending is required in buying back unsold BS4 stock from dealers (unless the deadline is extended to a reasonable date).
Recovery remains unlikely in the near-term. Still, there could be some positivity over the medium-term if factors such as favourable demographics, bettering middle-class economy, low penetration of two-wheelers, improved financial availability, rapid urbanisation, etc., are achieved. Sadly, there is no possibility to bring the losses down to an ignorable level.