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Old 25th March 2020, 22:49   #1
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Default Some car dealerships will go out of business due to Covid-19

Due to the coronavirus outbreak and the ongoing lockdown, some car dealerships could go out of business in the near future.

Additionally, there has been a drastic fall in the number of car deliveries due to the BS6 switchover. In Maharashtra, Gudi Padwa is considered as an auspicious occasion where many customers take delivery or book new cars. However, this season there were very few deliveries and new car bookings. Some dealerships in and around Mumbai told us that they delivered all of their pending cars for the festive season by 20th March itself and even then, they were in single digits. Maruti Suzuki, Hyundai, and Mahindra dealerships have reported an uncertain future if this crisis goes beyond the month of April.

With cashflows reduced and inventories piled up, the dealerships are uncertain on fixed costs like rents, loan repayments, utilities and staff salaries. Further, many sales executives haven't yet been paid their incentives for the month of February as well.

Footfalls have also fallen since November 2019. Walk-in enquires till last month were down to single-digit customers per day. A Nexa showroom reported an average of 15 walk-ins per week since the start of 2020. The situation at the other brands is also similar. Despite new launches, Tata, Mahindra and Hyundai dealers are witnessing a fall in enquiries - both in-showroom and telephonic.

The entire dealership model depends on inventory. Most dealers take overdraft / small term loans for buying cars from manufacturers and paying it off when a customer buys the car. Many dealers reported 2-4 month inventories in their stock. One good news is that almost all BS4 stocks have been cleared. But the high BS6 inventory is concerning.

This pandemic has not only shut down the sales, but also the service side of the business. Low margin, mass-market players depend heavily on after-sales service, accessories and insurance renewals for revenue. While new car sales do add to the books, it's the recurring revenue that keeps them afloat. Premium car dealerships and new entrants like Kia and MG are slightly better off due to larger margins and made to order inventories. That said, few premium car dealerships have reduced the size of their outlets or shut down non-profitable branches over the past 6 months.

Some car dealerships will go out of business due to Covid-19-nexa_workshop_baner_pune_n.jpg

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Old 26th March 2020, 10:24   #2
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Default Re: Some car dealerships will go out of business due to Covid-19

Feel sad for this incredibly capital-intensive business. The challenge is real. What's worse, it has been one fight after another for car dealerships. In 2019, they suffered a 20% dip in car sales (some months). Then, they had to worry about BS4 inventory. And now, a complete shutdown of the market which means zero sales & service income.

Those who have cash / working capital will cut costs and make it through. The smaller guys or those who are over-leveraged will be R.I.P. I know for a fact that some major car dealers have taken huge loans.

Expect car manufacturers to help the good dealers out financially. After all, an interest-free loan is small change for a manufacturer to keep a good car dealer in business (one who has high sales + strong location).

Quote:
Originally Posted by blackwasp View Post
In Maharashtra, Gudi Padwa is considered as an auspicious occasion where many customers take delivery or book new cars.
Also March 31st financial year ending which is when companies line up to buy cars + claim depreciation.
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Old 26th March 2020, 10:50   #3
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Default Re: Some car dealerships will go out of business due to Covid-19

Even component manufacturers-Tier 1/2/3 vendors would have taken a major hit (along with dealerships, they form a major part of the automotive industry manpower). Major OEMs have tightly negotiated prices and terms for supply with these vendors for supply of components to the factories. They probably do not stock as much as car dealers have to (in terms of monetary value), but still have enough manpower which need financial support in the current scenario (especially the contractual staff).
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Old 26th March 2020, 13:13   #4
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Default Re: Some car dealerships will go out of business due to Covid-19

Not just car dealerships, all vehicle dealerships are in trouble. With the supreme court refusing to extend the BSIV registration deadline, any dealer who has BSIV vehicles in stock is going to struggle to get rid of it. IF RTOs are working (if they are considered critical), at least they can register it in their own name and sell it as second owner later. Even if customers have booked/paid for BSIV vehicles already, it cannot be registered post March 31st.
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Old 26th March 2020, 13:54   #5
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Default Re: India on full lockdown till 14th April, 2020

SC order on BS6 implementation.
Slowdown induced by domestic structural issues and international trade wars.
The 'electric is future' noise amplified by the zillion media and internet reach.

And finally, Her Excellency, Corona driving the nail tight.

Truly, A Series of Unfortunate Events.
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Old 26th March 2020, 14:37   #6
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Default Re: Some car dealerships will go out of business due to Covid-19

Quote:
Originally Posted by ike View Post
Not just car dealerships, all vehicle dealerships are in trouble. With the supreme court refusing to extend the BSIV registration deadline, any dealer who has BSIV vehicles in stock is going to struggle to get rid of it. IF RTOs are working (if they are considered critical), at least they can register it in their own name and sell it as second owner later. Even if customers have booked/paid for BSIV vehicles already, it cannot be registered post March 31st.
Even if the BSIV deadline is extended, most car purchases will go on hold for now. Dealerships have a huge fixed cost.
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Old 27th March 2020, 10:51   #7
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Default Re: Some car dealerships will go out of business due to Covid-19

Sharing a post from a BHPian-car dealer:
Quote:
Originally Posted by navpreet318 View Post
As usual worse hit are the small business owners. Automotive Dealers type businesses with similar manpower and turnover. No sale. No service. No revenue. Yet we have to support our employees. We cannot leave them in lurch at this time.

And no support for us. Paying between 6 to 10 lakhs for such businesses without a single paisa of revenue will be hard. On top of that interest charged for inventory which will just lie idle. Fixed amount of Bills for Telephone and Internet connectivity which are not going to be used. Cannot stop the phone numbers else would loose them.

Security services payment for an idle business. The business community will be hit hard. Especially small and medium businesses which are people owned and not corporate.
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Old 27th March 2020, 10:54   #8
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Default Re: Some car dealerships will go out of business due to Covid-19

Today SC is hearing the FADA petition on the extension of timeline to sell / register BS4 stocks. Though car dealers have low BS4 stocks, two-wheeler dealers have huge inventory as the transition has not been smooth across board and brands.

In the current scenario, everyone is expecting the ruling to favour the industry.
Even Hormazd tweeted https://twitter.com/hormazdsorabjee/...12908500140032

Last edited by BlackPearl : 27th March 2020 at 18:24. Reason: Minor typo. Thanks.
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Old 27th March 2020, 11:20   #9
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Default Re: Some car dealerships will go out of business due to Covid-19

Quote:
Originally Posted by vigneshnr View Post
Though car dealers have low BS4 stocks, two-wheeler dealers have huge inventory as the transition has not be smooth across board and brands.
Lockdown leaves India's car dealers with the battle of their lives - The Economic Times https://m.economictimes.com/industry...w/74810838.cms

this article says " The value of unsold inventory of BS4 vehicles with auto dealers stands at a whooping Rs 6,300 crore plus with manufacturers and dealers at their wits end.

Two-wheeler manufacturers are the hardest hit with more than 7 lac units lying in stock amounting to Rs 3,850 crore "

Not sure if the 3850 crores is a sub set of the 6300 crores they are indicating.
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Old 27th March 2020, 16:32   #10
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Default Re: Some car dealerships will go out of business due to Covid-19

Quote:
Originally Posted by vigneshnr View Post
Today SC is hearing the FADA petition on the extension of timeline to sell / register BS4 stocks. Though car dealers have low BS4 stocks, two-wheeler dealers have huge inventory as the transition has not be smooth across board and brands.

In the current scenario, everyone is expecting the ruling to favour the industry.
Even Hormazd tweeted https://twitter.com/hormazdsorabjee/...12908500140032
Is there a list of BS4 inventories for different manufacturers. In the 4-wheeler space, the numbers might not be that huge. But things are different in the 2 wheeler space. Bajaj is against the extension , which means they have no more BS4 stocks. RE have mentioned they don't have BS4 stocks and Honda have already moved to BS6 for their bread & butter vehicles well in advance.

Which probably leaves only Hero & TVS who might have unsold BS4 stocks.
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Old 27th March 2020, 17:34   #11
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Default Re: Some car dealerships will go out of business due to Covid-19

In a judgement that will have far-reaching consequences for many automotive retailers in India, the Supreme Court has allowed a conditional extension for the BS4 sales deadline. As per the order, automotive retailers can only sell 10 percent of unsold BS4 inventory for 10 days post the prevailing lockdown. However, BS4 vehicles sold but not yet registered will be eligible for registration post the lockdown. The Supreme Court was hearing a last-ditch plea from the Federation of Automobile Dealers Association (FADA) to extend the registration timeframe for BS4 vehicles beyond the original April 1, 2020 deadline, bearing in mind the impact of the nationwide lockdown enforced due to the novel coronavirus (COVID-19) outbreak. Interestingly, Delhi NCR has been left out of the purview of the order, meaning no sales of BS4 vehicles can take place in the region post March 31.

Reference

https://www.google.com/amp/s/www.aut...eadline-416686
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Old 27th March 2020, 19:35   #12
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Default Re: Some car dealerships will go out of business due to Covid-19

Quote:
Originally Posted by RaghavEvoX View Post
Is there a list of BS4 inventories for different manufacturers. In the 4-wheeler space, the numbers might not be that huge. But things are different in the 2 wheeler space. Bajaj is against the extension , which means they have no more BS4 stocks. RE have mentioned they don't have BS4 stocks and Honda have already moved to BS6 for their bread & butter vehicles well in advance.

Which probably leaves only Hero & TVS who might have unsold BS4 stocks.

There are no official numbers confirmed, but the estimate is 7 lac two wheelers. And the new appeal has been made by Hero and Honda. So Honda dealers also would be having BS4 stock in substantial quantity.

https://www.autocarpro.in/news-natio...april-14-56002

Statement from Honda Chief - https://auto.ndtv.com/news/bs4-stock...rom-sc-2201320

Now the court order needs to be understood in detail for effective action by the OEMs and dealers.

Last edited by vigneshnr : 27th March 2020 at 19:48. Reason: Added a news source
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Old 28th March 2020, 11:12   #13
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Default Re: Some car dealerships will go out of business due to Covid-19

Quote:
Originally Posted by rijo_tj View Post
In a judgement that will have far-reaching consequences for many automotive retailers in India, the Supreme Court has allowed a conditional extension for the BS4 sales deadline. As per the order, automotive retailers can only sell 10 percent of unsold BS4 inventory for 10 days post the prevailing lockdown.
The judgement only shows how disconnected the Supreme Court is with respect to the situation of the automobile industry in India. The highest court has just turned a blind eye. First, the judgment could have been based on the production of BS4 vehicles, rather than sale / registration. Second, the court could have directed the local RTOs to take a list of BS4 chassis nos available with the dealerships by a certain cut off date and not allow any registration apart from the list. These would have ensured at least the dealer business are not squeezed. Now, many of the dealership business are sitting ducks caught with pants down. Manufacturers have dumped the BS4 stock, customers are expecting unreasonable discounts and court is not willing to allow registration. This is THE toughest phase for automobile dealership business in India.

Most of the manufacturers too did not take the heeding seriously and have kept pumping BS4 models expecting the dealerships to liquidate them; but lot of misinformation on the net regarding BS4 vehicles, falling sales and general negative sentiment of buyers have made impossible now. While environment is important, sale of BS4 vehicles for another month or so is not going to make much of an impact. But, unfortunately, the industry and its customers have always been given a step motherly treatment by both the Governments and courts always, inspite of it contributing to a major chunk of our economy.
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Old 28th March 2020, 11:30   #14
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Default Re: Some car dealerships will go out of business due to Covid-19

Having a short time period to sell the stock is as good as having no extension. People will know that that the dealers are desperate to sell, and will drive down prices aggressively. Won't they be better off selling whatever stock they can sell, selling some as used, and using the rest of the stock for parts.
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Old 29th March 2020, 16:53   #15
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Default Re: Some car dealerships will go out of business due to Covid-19

Entirely agree. Its not just limited to car dealerships but entire community of small & medium scale business. Especially the ones who deal with luxury & not a basic necessity. Owing to the fact that the crisis is real after the lockdown & its here to stay for some years to recover, even after the markets open & things return to normalcy, the foot falls & the deals would be rare in any & every such business. I am a Travel Agent & IMO Travel & the aviation industry is the worst hit.

BUT, if I look a long term positive side to this effect; I hope & believe the business community would learn to evolve with a greater integrity which would eventually result in a grow & let grow mentality which was much required. I have learnt to look at this situation as sterilization & nothing else.
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