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    Auto dealers seek higher margins to offset slump in sales, save jobs

    Synopsis

    Federation of Automobile Dealers’ Association (FADA) has urged automakers to fix minimum dealer margin at 7% on selling price of the vehicle to help restrict job losses in the sector that employs four million personnel directly and indirectly, and make “this business model more sustainable, shockproof and comparable to international standards”.

    Auto dealersAgencies
    Discussions are also on to reduce inventory cost by rationalising stocks at dealerships to about 10 days, compared to 3-4 weeks earlier, industry insiders said.
    Automobile dealers have written to manufacturers to increase their margins to offset an expected slump in sales volume this fiscal and sustain their operations in the aftermath of the coronavirus outbreak and the national lockdown to contain it.

    Federation of Automobile Dealers’ Association (FADA) has urged automakers to fix minimum dealer margin at 7% on selling price of the vehicle to help restrict job losses in the sector that employs four million personnel directly and indirectly, and make “this business model more sustainable, shockproof and comparable to international standards”.

    Average dealer margin in the country is among the lowest in the world at 4-5% of the selling price of vehicles, against 8-10% in the US, 9-11% in China and 13-14% in most of Europe, it said.

    FADA also highlighted the need for automakers and dealers to cut costs at dealerships by at least 20% on an immediate basis.

    Industry insiders estimate that 800,000 jobs could be lost in the sector over the next two months. Unless revenues increase, this number could balloon to 1.2-1.4 million, they said.

    In a letter to Society of Indian Automobile Manufacturers (SIAM), FADA president Ashish Kale said a hike in dealer margins will make “this business model more sustainable, shockproof and comparable to international standards”.

    Any variable dealer margin linked to target achievement, processes, quality parameters should continue and be over and above the fixed margin based on respective corporate cultures and businesses goals of each OEM (original equipment manufacturer), he said.

    In its response, SIAM said that while the letter has been forwarded to members of its executive council, it will be most prudent to leave it to individual OEMs to work with their respective dealerships for managing the situation.

    “The business practices vary across OEMs and is unique to their respective businesses,” SIAM president Rajan Wadhera said in a letter to FADA. “Your member dealers shall, therefore, be well advised to get in touch with their respective OEMs to sort out concerns on dealer margin and cost structures on a one on one basis.”

    Dealers have accordingly also reached out to automakers individually with their demands.

    FADA also stressed the need to cut costs. “Many OEMs have already started the cost-cutting project by engaging with their dealer councils even before the Corona situation hit us, but now this is an urgent need,” it said in the letter.

    Employee compensation, interest costs and infrastructure account for majority of the costs for dealer principals.

    A senior industry executive said automakers and dealers are looking at ways to increase productivity. “One way of doing this would be to club jobs which had earlier been duplicated,” the person said on condition of anonymity. “There is also a need to reconsider viability of outlets, especially those which have been set up over the past two years in anticipation of growth in the industry.”

    There are 15,000 dealers who own and operate 26,500 showrooms and service outlets across the country.

    Discussions are also on to reduce inventory cost by rationalising stocks at dealerships to about 10 days, compared to 3-4 weeks earlier, industry insiders said.


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