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Old 2nd May 2019, 09:53   #1
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Default Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Shutter down: Dealers follow car sales into slow lane
https://auto.economictimes.indiatime...-lane/69137821

In the past 2 years,

- 205 dealers have wound up operations
- 300 outlets shut
- Losses of Rs. 2,000 crores
- 3,000 jobs lost

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Old 2nd May 2019, 10:18   #2
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Default Re: Financials (income, expenses & margins) of car dealerships in India

Quote:
Originally Posted by SmartCat View Post
Shutter down: Dealers follow car sales into slow lane
https://auto.economictimes.indiatime...-lane/69137821
I was about to paste the same news but you have beaten me to it.

IMHO the biggest reason for the drop in sales is the woeful infrastructure. The cities even the class B ones are now choked with vehicles, driving any type of vehicle is now more of a pain than pleasure. Highways too are getting congested very fast. Its much more friendly on the mind as well the pocket if one takes Uber or Ola for intra city travel.

The other reason is quite a bit of slowdown in the so called MSME and unorganised sector for last two years but I see a slow pick up there.
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Old 2nd May 2019, 13:56   #3
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Default re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Thanks for sharing, Smartcat! Moving your post to a new thread. A dealer friend just messaged me saying "Last 2 days, panic is occurring on our WhatsApp dealer groups on the industry figures for April 2019 and FY19. The facts are really shocking and the situation is going from bad to worse. It is not a good symptom and we foresee exits, production cuts & job cuts shortly. At the outset, buyers can expect discounts to shower like never before".

Also thanks to Karan.Carguru for sharing the following! It's a bloodbath, guys. Even if we look at month-on-month comparisons, Maruti lost 20% sales in April 2019 (vs April 2018). I expect many more dealers to shut down. The only ones who will survive are those with lots of working capital.

Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost-a9438298fd844c6784fee9301135e278.jpg


Last edited by GTO : 2nd May 2019 at 16:35.
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Old 2nd May 2019, 14:06   #4
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Kotak Mahindra Bank announced its results yesterday and Uday Kotak specifically talked about the Bank's exposure to the auto sector.

Disbursements to auto sector under review, says Uday Kotak

Quote:
"The apparent reason seems to be the availability of financing," Kotak said, adding that banks need to be ready if the trend is reflecting any structural change in consumer behaviour.

Loan growth to the auto sector has taken a hit, data from Reserve Bank of India showed. In 2018-19, loans disbursed to vehicles, vehicle parts and transport equipment grew by 1.4 percent, as compared to a growth of 7 percent in the previous financial year.

Passenger vehicle sales in India rose just 2.7 percent in 2018-19 as weak customer sentiment led by liquidity crunch, high vehicle prices and uncertainty revolving forthcoming elections put brakes on the sales growth in the segment.
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Old 2nd May 2019, 14:08   #5
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

It's all coming together, and not in a good way.

Bad urban infrastructure, overpriced non-VFM products, worsening credit situation due to bad institutional lending practices choking liquidity and socio-cultural shift away from vehicle ownership in certain demographics, just to name the obvious factors, are all feeding into this downward spiral.

There's only so far a 'can' can be kicked down the road, or down a customer's throat! Pun unintended, or maybe not. This has now gotten beyond the realm of band-aid fixes, and one hopes the solutions are more concrete and less rhetoric this time round.

Last edited by Chetan_Rao : 2nd May 2019 at 14:14.
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Old 2nd May 2019, 14:24   #6
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

My company and I have a ring-side view of this mess.

Some reasons are mentioned above, but I would like to state my opinion: Dealers are shutting down, not just because of low sales but because of bad practices.

Sales are bound to go up and down. Given the way the market has been on an upswing over the past few years, a correction was bound to happen. Also, many cars are now being sold in the rural areas and dealers there are growing in sales numbers.

The issue is that most dealers built up their business on loans. The car manufacturers knew it and encouraged it. Because of that, when the downturn came and credit dried up, most of these dealers were in trouble.

There are still some very strong dealers who have been cautious and conservative. These guys are well poised to benefit when the weaker ones exit or are forced to exit.

Many dealers also showed the huge turnovers of their automobile business, took loans and then invested that money in real estate. With the real estate crashing (especially in cities like Delhi and Bombay), these guys were caught between a rock and a hard place.

Crucially, very few dealers ever thought of this situation and how to deal with it. Most dealers only focused on sales and not on service. Car dealers in the US learnt this lesson in 2007-2009. Since then, car dealers in the US have focused on service, retaining customers for services, repairs and improving their service revenues.

India has not yet caught up and the few dealers who value service business are comfortable. Many others are in trouble.

Many dealerships also are going through a generational change. The father has started the business and been successful but now, the children are either not interested or not capable of handling the big business that the father has built. This is further contributing to poor business decisions, poor strategy and bankruptcies.

There are so many more things that I am seeing at close quarters, that it's sad. Most of these children who are heirs to huge dealership chains do not care about cars. Ask them a single technical question and I'm sure they will have no idea. It's sad that the business is being run by people who lack a passion toward something I am so passionate about!
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Old 2nd May 2019, 14:26   #7
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

I've decided against buying a new vehicle this year as the roads in my state of Himachal are in a very poor state, due to the ongoing road widening & 4 laning works.

My relatives in the metros are not buying vehicles due to parking issues & the ease of Uber/ Ola.
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Old 2nd May 2019, 15:58   #8
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Scary situation. I was in the market for a small car, but decided on retaining our old work horse of bolero which is 15 years old instead of buying a new smaller car which offers lesser space. The "Let it Rust" campaign of Egypt makes more sense too, if your car is working fine, do not buy another one. Also please maintain your vehicle.

Car manufacturers have increased the prices of cars like as though the customer had literally a printing press for cash at home. A fortuner in 2013 costed 30 lakhs, the current generation fortuner is 40!! I understand inflation etc, but 10 lakhs in 5 years?

One dealership was never able to fix a noise issue which comes from my car. Dealerships in rural areas are staffed by mechanics who have no idea what they are talking about and are just a glamour quotient for the big city dealer who can boast of having multiple branches.

Another popular car dealer had to fire 30-40 employees in their rural branch as they were using the spare parts for fixes, but never billing it and pocketing the money instead.

Lastly the Ride sharing apps have dealt a death knell for car ownerships especially in cities. Why struggle to drive and get stuck in jams, when you can chill in the back and read a book instead.

Maddy
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Old 2nd May 2019, 16:17   #9
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

This is good news. I like it and have been waiting for it to happen for a while now. We need more world class public infra, not these ungainly tin boxes.
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Old 2nd May 2019, 16:28   #10
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Quote:
Originally Posted by GTO View Post
I think that chart needs to be taken with a ton of salt. Is FIAT selling that much?? I really doubt it! The automakers have gone rather greedy with their downsized and under powered engines and their greedy asking price. If Maruti is feeling the 'heat' then it's going to have a domino effect on the rest: the smallest would fall like 'nine pins'.
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Old 2nd May 2019, 16:32   #11
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

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Originally Posted by Durango Dude View Post
I think that chart needs to be taken with a ton of salt. Is FIAT selling that much?? I really doubt it!
That includes Compass numbers, should be mentioned as FCA
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Old 2nd May 2019, 16:32   #12
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

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Originally Posted by Chetan_Rao View Post
overpriced non-VFM products
Personally, I believe this is one of THE most important factors. The second one being the NBFC crisis. I've said it before, the car manufacturers had (have?) become like property developers. Just keep jacking up prices and the buyers will keep coming. Well, just like houses stopped selling, so have the nonsensically overpriced cars. Something had to give. Just yesterday I found out Pahwa Motors, Safdarjung (used to be a Tata dealer) have shut shop.
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Old 2nd May 2019, 16:41   #13
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

With the BS6 regulations coming into force next year and the future of fuel especially diesel being dark, more people are thinking twice about their purchase. In addition the traffic situation in Tier 1 and 2 cities is so bad, more people are investing in public transport like metros and share cabs like Ola/Uber.
With newer cars coming with more and more gizmos and technology, the service centers are not able to cater to the customer complaints and solve their issues, thus leaving customers unsatisfied and a mediocre name for the car company in terms of service.
These are few reasons for major slow down in car sales.

Last edited by ruzbehxyz : 2nd May 2019 at 16:44.
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Old 2nd May 2019, 16:45   #14
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

The hits to dealerships won't stop here, will it? If lesser new cars are being bought, the supply of cars to be traded in the used car market will also take a hit. We have so many used car dealers and related fly-by-night operators in our cities who will find that their turnover isn't increasing. Meanwhile, with the decreased supply in the market, the used cars' prices will shoot up, which means that many buyers will simply not buy used cars - which again will hit used car dealers.

A trickle-down effect will be felt on all those car accessory shops as well because of all this. Most of their sales happen when people buy a new or used car.
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Old 2nd May 2019, 17:39   #15
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Default Re: Slowdown bites hard: 205 dealers shut down, Rs 2000 crore losses & 3000 jobs lost

Quote:
Originally Posted by Nikhilb2008 View Post
My company and I have a ring-side view of this mess.
Fully agree with you.

The news article seems to have been written by school kid, with reference to GST & working capital cycle/ turnaround. This could be a full length discussion if we discuss GST here, but in short the difference in pre-GST working capital cycle/ turnaround is only reduced by few weeks. In addition, the impact of same has been witnessed in the initial phase of GST transition itself. Plus there are increased savings to these businesses in claiming input taxes (which was not possible in older regime). However, GST (to it's credit) has increased compliance & it is becoming more & more difficult to hide malpractices.

Moreover, the states which have seen max of the dealers quitting are - Bihar & Maharashtra (the drought prone interior region IMO). These regions (I'm referring these are regions, not as states) are backward in terms of industrial development & prosperity, & hence, the dealers face difficult to sustain themselves in (agricultural) off-season. It is this time companies off load stocks to maintain sales (& market position/ value) (I have come across cases where stock transfer REVERSAL adjustment is recorded in financials on 31 Mar 18 (in case of major auto company). Simply put they are inflating numbers, & promoters blabbing to public/ stock markets. This practice badly affects the profitability of dealers as they have to invest money without timely & adequate returns.

As @Nikhilb2008 has mentioned not all business are being run in most efficient manner. Owners are killing the goose that lays golden eggs before it lays sufficient eggs to sell few & lat few hatch to increase the number of such geese. As a CFO in a group, I was fortunate to introduce best practices in a groups operations & weed out few fraudsters (at cost of physical harm) in our group, but could not change the habits of owners. I'm much happy being independent now, though chased by reputed names in industry.

Lastly, cheap service comes at cost, either it's astronomical product costs as in case of Toyota or deserting dealers in case of Maruti where margins are lower. I have a gut feeling that Tata & M&M with their good quality (recent) products will harm the leader more, but their service/ ownership costs will go up as well.

Add to this number of cars sold per dealership of Maruti isn't at the top, so it is sooner or later bound to affect the dealers whose margins are sort of thinner.

Hyundai is, BTW known to terminate dealership contracts for deficient services & it happened in few cases I know in NCR. So, I would again discount reference to Hyundai in the news article.

I feel this is better for industry for the cry babies will sooner or later leave, & there will be sort of serious players in market.

Last edited by CARDEEP : 2nd May 2019 at 17:55.
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