With the entire country under lockdown till April 14, 2020, many automotive dealerships are facing severe losses on multiple levels, starting from unsold BS4 stock and the significant fixed overhead costs along with employee salaries.
The Coronavirus pandemic has hit the Indian economy hard and automotive dealers across India are bearing the brunt of it. For starters, dealerships across India have a combined total of unsold BS4 vehicles worth ₹ 6,400 crore. The Federation Of Automobile Dealers Association (FADA) says that there are a total of 7 lakh units of unsold BS4 two-wheelers along with 12,000 BS4 passenger car units and 7,000 BS4 commercial vehicles units. Adding to the costs are the significant fixed overhead costs along with employee salaries. Plus, there is an added cost of holding the inventory. Since dealerships are not operational anymore, the cost of keeping and maintaining the inventory is being added too.
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“With a total of 12 dealerships and 15 workshops, our total losses just for the month of March 2020 have gone up to ₹ 8.5 crore. The losses could cross ₹ 12 crore till April 14, which is when the lockdown lifts,” said a spokesperson from a dealership chain in western India, with dealerships of three two-wheeler companies who wished to be not named. The average margin on sale of a new vehicle is around 5 per cent and this is on gross sale. In simple terms, this is the difference between the cost and purchase price.
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Nikunj Sanghi, Managing Director, JS FourWheel explains, “there are many dealerships who have sold a portion of their BS4 stock in March, but the customers could not get the vehicles registered because of the lockdown. The banks aren’t releasing payment for such vehicles as they need registration proof. Plus, the RBI moratorium loan repayments and EMIs aren’t working in favour of dealerships either. This is why the registration date for such vehicles (BS4 stock sold but not registered) has been extended till April 30, 2020.”
He further reiterated that dealerships across India need relief and listed out a few measures for the same.
1. Use Employees’ State Insurance benefits: Under ESI, an employee can draw cash allowances for up to 24 months in case of involuntary loss of employment or permanent invalidity due to non-employee injury.
2. A moratorium on interest due: The RBI can issue a moratorium on the interest due for a small period of time, at least till the time the dealerships start earning regularly again.
3. Extension of BS4 sales: Extend the date of BS4 sales from the current April 24, 2020 to beyond.