[TusharK]

Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA), has voiced his concerns over the sudden exits by automakers, which have resulted in huge losses for businesses. This comes in the wake of Ford announcing its exit from the Indian market.



Ford is the fifth automaker to shut shop since 2017, after General Motors, Man Trucks, UM & Lohia and Harley-Davidson. According to FADA, 64,000 jobs have been lost as a result of OEMs exiting the market.



Among the five OEMs that have exited in recent times, Ford has had the largest setup comprising of 170 dealerships and 40,000 employees. General Motors had 142 dealerships that employed 15,000 individuals. Harley-Davidson, Man Trucks and UM & Lohia dealers had a workforce of 2,000, 4,500 and 2,500, respectively.



FADA has requested the Minister of Heavy industries to formulate legislation to safeguard the interests of the dealers as well as customers and protect them from unfair termination of dealership agreements.

Link to Team-BHP News

[how_you_doing]

FADA has requested the Minister of Heavy industries to formulate legislation to safeguard the interests of the dealers as well as customers and protect them from unfair termination of dealership agreements.

India doesn't need any more regulations than what it already has. In a free market, companies who are at loss will file for bankruptcy and close businesses.

Now there are multiple players in this situation who are at loss - Car manufacturers, Dealers, Employees, and consumers.

Let's ignore car manufacturer's losses completely to focus on "smaller" guys and only talk about the 2nd and 3rd and what went wrong and what can be done in the future to stop this (there is already a thread on 4th - effect on consumer and what they can do).

Dealers

After reading numerous posts in Team-BHP, it is obvious that majority of Indian car dealers run their business like "Lala ji ki dukaan". The owner is too big to be involved in the business and the last mile is not paid enough or trained enough to deal with the efficiency to run a dealership.

The reason why Indian IT companies are so successful and mint money are because they are extremely efficient in building processes, finding issues, coming up with quick solutions and being goal-oriented. I know 5 people startups run by 20 years old who talk about NPS, KPI, cash flow, burn rate, run rate, etc. They keep a close eye on industry growth, competitors, new entrants, etc too.

Any smart business should have been able to pick up the signs even 6-18 months back that the car manufacturers are closing down. As a business owner, you need to cut the losses immediately if things are going wrong. Even now Indian dealers are taking huge real estate leases instead of getting leaner and being more tech-oriented.

If I am a dealer, before putting crores, I definitely want legal agreements to be done with the manufacturer (their US entity) about certain commitments from them to safeguard my interest. If Indian dealers are not even smart enough to do this, they deserve to lose money. In business, you bet on yourself and not on others to make you money otherwise it is just gambling.

Employees

They are the real losers here. I hope they are getting 3-6 months' severance pay from dealerships and assistance in finding new jobs.

I really hope Indian private employees start asking for extended health insurance and salary insurance while joining any company even if deals with blue-collar workers.

FADA needs to talk about these points and inefficiencies instead of publishing press releases about more legislation. In India, it is extremely important that businesses and employees learn to look out for themselves and plan their finances and future with care based on their current options. It is not being smart, it is just common sense.

[lsjey]

Asking for legislation is fair. But FADA has its work cut out too. They should create templates for dealership agreements, NDAs and such and provide support to the dealers in negotiating fair terms and conditions.

I'd say that FADA has not done its job. They knew that many manufacturers are leaving and this is affecting their members. What were they doing all this time?

Regards,
lsjey

[aargee]

I don't mind an infraction on this post just to voice my views...

As the taxation increases on all possible things from spares to labor charges to unfathomable & unpardonable taxes on fuel, with the ban on importing the tires while forging a scarcity on tires made locally & simply asking every manufacturer to setup the factory for passing tax benefits on one hand...while the other hand procrastinates every step taken to start a business under the cover of bureaucracy, what else to expect?

Does the thread like these make any sense?
https://www.team-bhp.com/forum/india...cene-here.html (Free trade Agreements, any impact on the car scene here?)
https://www.team-bhp.com/forum/super...cost-less.html (Import duties on bikes revised, CBUs to cost less)

This is how I feel...

[CarNerd]

What will Govt do if a company incurs losses? When Govt itself is getting blamed for keeping loss making PSUs like Air India, BSNL, MTNL, etc, how can they protect private dealers? It's like Anil Ambani asking Govt to protect his interests.

[su1978]

These auto OEM's leaving india and taking away the employment of such a huge number of people is really a matter of great concern. Let us not count only these 40000 people, let us also account for the families associated with these employees. Even if we average out 4 dependents, it overall accounts for 160000 people who will have to suffer. If we have a look at these companies, most of them are US based. With some very ineffective sales strategy, they land up no-where. And the end result is for everyone to see.

One thing is for sure that the letter from FADA to the government will not be very effective but it will at least make the government aware about the reality.

[ramzsys]

For cars to sell, people need to buy/upgrade.
People can buy only if they can use it.
To use a car, you need drivable roads, multiple lanes and road discipline. Urban roads are infested with speed breakers and crawling average speeds.

There's no proportional lane expansion commensurate to the vehicles that are being sold. This results in increased time to commute, increasing fuel consumption (which also causes more pollution), menace of horns, pent up frustrations leading to bullying/road rage.

To be on the road, to drive around used to be a joy, now it's a hassle. The GDP grows, college pass-outs get fatter pay checks but the cars aren't getting sold in the CAGR like they used to. The new age mantra of 'rent rather than own' to blame too.

[V.Narayan]

There are several parallel problems at work here. First is the exit of multiple auto OEMs for varying reasons of poor strategy or lousy sales & ASS tactics or inappropriate products etc. Underlying each of these exits is the wobbling economy and auto market growth which has remained stagnant for some years and taxes, on the industry & the product, which have not. This closure of businesses has been pronounced in small & medium enterprises in other sectors and that does not attract news headlines. The auto sector is one where big names exiting makes news. But the iceberg beneath the waves of large scale SME destruction across sectors and unemployment is less visible. And now the Govt does not want unemployment statistics to be announced lest the truth about the emperor's new clothes gets out.

The second is the human tragedy of the 64,000 dealer employee families impacted. But we also have the OEMs own employees to account for and all those small businesses supplying parts to these OEMs and services from engineering support, employee transportation to housekeeping. In each of these several homes a family tragedy unfolds which we upper middle class and rich class folks on this forum may not always fully fathom the depth of.

The dealers' families themselves will survive while losing some or a lot of their net worth and income. The bigger damage is when incidents like this deter an entrepreneur from creating fresh investments and jobs later on.

Whether the Govt can do much or not I cannot say. Unlikely they will do much.

Originally Posted by how_you_doing

Dealers
.....
The reason why Indian IT companies are so successful and mint money are because they are extremely efficient in building processes, finding issues, coming up with quick solutions and being goal-oriented. .....Any smart business should have been able to pick up the signs even 6-18 months back that the car manufacturers are closing down. As a business owner, you need to cut the losses immediately if things are going wrong. Even now Indian dealers are taking huge real estate leases instead of getting leaner and being more tech-oriented......If I am a dealer, before putting crores, I definitely want legal agreements to be done with the manufacturer (their US entity) about certain commitments from them to safeguard my interest. If Indian dealers are not even smart enough to do this, they deserve to lose money. In business, you bet on yourself and not on others to make you money otherwise it is just gambling.

Sir, you are entitled to your views. I hold no placard for auto dealers. But your statements, of which I've quoted only a few, indicate a lack of understanding of how business gets done, the risks that are borne and the way the cards are stacked by a giant OEM against a vendor. Your statements don't hold water in the regulated brick & mortar business environment of India.

IT businesses in India by and large, especially the export oriented ones, make a large part of their profits from spending in INR and earning in USD and leveraging the purchasing power parity between the two. Of course we are proud of how IT has put our country on the map but to call them the only examples of efficiency & streamlined processes might be a stretch.

[Mr.Ogre]

Originally Posted by aargee

I don't mind an infraction on this post just to voice my views...

As the taxation increases on all possible things from spares to labor charges to unfathomable & unpardonable taxes on fuel, with the ban on importing the tires while forging a scarcity on tires made locally & simply asking every manufacturer to setup the factory for passing tax benefits on one hand...while the other hand procrastinates every step taken to start a business under the cover of bureaucracy, what else to expect?

These are exactly my thoughts. I do not understand how free trade works between nations. First world countries allow service and manufacturing industries to go to developing nations. Yes, their industries benefit from lower costs, however general public there face unemployment.

In return, the developing nations should be lowering taxes on imports from these partner nations, isn't this how free trade should work? I understand that the developing nations want to strengthen their local industries, however shouldn't there be some sort of cooling period after which they should open their markets for partner trading nations?

I remember a few years ago Mr.Trump had imposed taxes on Indian mangoes, and it kind of made Mr.Modi lower duties on Harley. Why should it come to that if it is actually free global trade.

[ABHI_1512]

Auto sector was already in doldrums since the last three to five years or so before Covid struck. GST actually made the things more difficult when the tax rates were sharply revised and then retracted a little but still attracts one of the highest taxation rates.

It’s funny when one looks at the invoice of a car before taxation. Recently one of my friend got a Hyundai Creta and taxes and various charges like registration and road tax actually made the car pricier by a whopping 4.5 lakhs !!
Its no surprise that auto makers are struggling across the board. Almost every auto major is struggling in India when the same companies are flourishing elsewhere. Chevrolet and Ford are gone, Honda is no where it was even five years back, Toyota is rebadging the Maruti’s. I hope Skoda and VW succeed with their India 2.0 program otherwise the job losses from the auto sector alone will be a catastrophe.

Joblessness is the bane of the country right now and this is not addressed by anyone. Probably it helps that the more people are jobless, more easy to make them depend on government doles and even more easy to divert from the core issues of development !! My heart goes out to people who lost their jobs and lost their near and dear ones in recent years, more so in the pandemic.

[AZT]

If you make exits tougher, people wont invest money in the first place. Ford left because they did not see growth in the auto sector which is a more systemic issue. Taxes need to come down, else more people will keep going for used cars which anyway hurts these companies.

[Kosfactor]

There is no denying that government policies and their frequency of new regulations etc has put automotive companies from investing in India. There is a sense of anything can happen with respective to the regulatory scene with courts and tribunals letting out rules at random.

However that does not explain Chevy or Ford exit. Chevy had a good grip on the UV market with Tavera, yet lost it. Ford has a grip on Sub4M and lost it, Ford could have made a longer Ecosport against Creta - but they did not. Renault could have got the new duster but they did not, Nissan could have become the Toyota which Toyota could not , yet did not. VAG could have not botch up their first India specific releases etc

So now we have MG and KIA who arrived with nothing and selling big numbers while these losers watch on. Good products sell and bad ones fail, survival of the fittest indeed.

We are now a seller's market.

[aargee]

Originally Posted by Mr.Ogre

First world countries allow service and manufacturing industries to go to developing nations. Yes, their industries benefit from lower costs, however general public there face unemployment.

In return, the developing nations should be lowering taxes on imports from these partner nations, isn't this how free trade should work? I understand that the developing nations want to strengthen their local industries, however shouldn't there be some sort of cooling period after which they should open their markets for partner trading nations?

Ideally, the developed countries invest in R&D, make things better & move towards more comfortable life. What's luxury here is just a need or general prevalence in developed countries. Typical example being, McD, KFC, jobs at Uber.

While the standards in developed countries get higher & higher, their low level jobs become a new standard in the developing countries. Whether things occur this way or not is a different question altogether.

To understand free trade, there's no better history to learn than Singapore.

Originally Posted by Mr.Ogre

I remember a few years ago...it is actually free global trade.

I've no answer to that as I have no deep understanding whether Mangoes were exchanged for Harley & now that Harley has gone from India, whether Mangoes are still exported to US or not.

I'll draw a simple analogy & convey a fact. Let's say you visit your friend's house where you're greeted & treated well versus you become an unwanted guest. Which situation do you prefer & in which place would you visit again?

If Tesla or anyone wants to setup a manufacturing plant, other than tax cuts, what does most business men expect? EASE OF DOING BUSINESS! which in a nutshell says everything about running a business.

Forget a manufacturing plant, spend an hour at your local market, especially in the evening, see the problems of street vendors. Sneek around an hour at check post, still you can witness some ground realities despite GST. If you're a salaried employee & have a good rapport with your administration team, just ask them the challenges they're experiencing from the local govt bodies. World bank & IMF still feels there's still political instability in India & that was a shocker to me!!

I'm more than positive that things have improved to a great extent in last 5 years atleast, but the pace of progress (add Corona) does not justify for the expected growth. May be in another 10-15 years things are certainly bound to change & hopefully we see HD's 4th manufacturing plant, Tesla, GM, Ford & may be even Bank of America lending loans to us.

[lsjey]

I'm surprised that there are quite a few posts on higher taxes on Auto sector. Let's say for argument’s sake, that the govt reduces/removes these taxes and makes automobiles more affordable. Let's see the options to make up for the revenue shortfall:

1. Reduce spending on key sectors like education, health, defence etc.
2. Increase taxes in other areas like Income, and other goods and services.
3. Print more money to make up the shortfall.

IMO, all the above options are bad. India is a developing country where owning an automobile is considered a luxury. Hence, taxes have to be higher. Arguing that taxes are high in India and hence manufacturers are going away is naive.

[sidg]

I personally don't think govt. policy has anything to do with Ford's exit from Indian market. Had it been due to govt. policies, it would have impacted maruti/hyundai as well as policies are the same for all car manufacturers. But both the companies have done so well esp. in the last 5 years. I think the buyers prefer both these brands due to their reliability and easy to find a garage to repair in case of any issue. Remember maruti's ad of it's service center in ladakh? Its because of easier and maintenance free ownership of maruti and hyundai is what the people are looking at while buying cars apart from fancy gizmos. Ford should have seen what Indian consumer wants and accordingly should have restructured their portfolio/offerings.

Feel sad for employees of Ford and dealers as they will be the ultimate sufferers for no fault of theirs.