Corona Virus Lockdown in India leaves Auto Dealers questioning their future

File Photo. Credit – Achin

Auto dealers operating in India are facing a tough time thinking if they can remain in business after present situations achieve normalcy. COVID-19 aka corona virus lockdown procedures were undertaken by India (as well as many other countries) with proper warnings but limited time for preparation. At present, businesses that operate depending on daily turnovers and sales have no other option than to wait it out until ‘a flattened curve’ is achieved.

While many IT firms and service industries are able to work from home as recommended by authorities, auto dealerships across India do not have such an option. Major automotive brands have still directed their dealerships to attend to emergency services such as roadside assistance and accidents. However, these tasks can only contribute to a minor portion of their overall revenue.

2020 has been a difficult year for automotive businesses in India with manufacturers rushing to update products to BS6 emission specifications before a stipulated deadline (1 April 2020). To clear off leftover BS4 stock, many offers and exchange bonuses were introduced at a dealership level.

As per data, there are over seven lakh unsold BS4 vehicles. BS4 two-wheelers account to more than Rs 2500 while leftover BS4 four-wheelers could be worth lower as many OEMs have followed a relatively efficient shift to BS6 norms. BS4 commercial vehicles lying unsold are valued at Rs 1,440 crore.

An ideal solution or temporary peace of mind to this is a deadline extension. FADA (Federation of Automotive Dealers Association) has already made a move to achieve it but one can only wait to see if there would be a sign of hope. As per current regulations, dealerships with unsold BS4 stock post 31 March 2020 have three options: (1) register them as pre-owned cars, (2) consult OEMs for a buyback policy, or (3) follow a proper scrappage policy.

Hence, dealerships are heading to inevitable losses if there is no deadline extension. While owners or parent firms of established dealerships are able to support their staff, many small-scale dealers simply cannot. State-wise border lockdowns are another issue faced by automakers.

Many experts have raised an opinion that a ‘force majeure’ provision (unavoidable circumstances that prevent a contract from being fulfilled) should be considered for a deadline shift, considering how many days RTOs remained closed. This will also help customers who were waiting to get their BS4 vehicles registered by 1 April 2020.

Government authorities are working closely with India’s banking sector to provide financial aid to struggling businesses. Still, there could be a limit to this as automobiles are one of many large-scale industries in India that are facing thousands of crores in losses with each passing day. COVID-19 has definitely extended its impact beyond human health and life.

Source