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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.

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