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As going gets tough, dealers look at carmakers for support

Thursday, 5 June 2014 - 7:25am IST | Place: Mumbai | Agency: DNA

It's not just automakers that are reeling under slowdown, car dealers too are facing the heat.

With sales going down, profitability has become a big concern for dealers, even leading to many players shutting shop.

To tide over the situation, the Federation of Automotive Dealers Association (FADA) along with consultant Frost & Sullivan (F&S) has come out with a study to establish best practices that can be followed by Original Equipment Manufacturers (OEMs) to help auto retailers make their businesses viable.

The study covered 60 channel partners across 60 cities.

Industry experts said dealers, especially new ones, are finding it difficult to survive in the business with the increasing operational costs and slowdown in sales.

"In a slowing market, a newly appointed dealer is more prone to booking operational losses as he has more reliance on vehicle sales revenue as compared to an established dealer, who has reduced its exposure to such slow conditions by developing a supporting cushion of service business," said V G Ramakrishnan, managing director, Frost & Sullivan South Asia.

The F&S study has laid down four key points to help improve dealer viability by 2-2.5%. They are – well managed vehicle inventory, constant monitoring of dealer business health, carefully monitored dealer network expansion, and viability support during business slowdown.

According to the study, a rigorous follow-up of inventory to keep stock under 20 -30 days limit can help dealer's viability improve by more than 1%.

Other measures like increase in vehicle sales margins, interest-free credit for 28 days, support on logistics and manpower costs could help in better sustainability during recession.

Also, with auto retail becoming unviable, a lot of dealers are moving into different businesses.

"The second generation of certain dealers are opting out of the business," said Nikunj Sanghi, director, international affairs & global relations, and immediate past president, FADA.

The manufacturers in the past two years have been trying to support the dealers in various ways in order to retain talent in the channel fraternity. Things like increase in dealer margins, interest subsidies are some of the issues taken care by the OEMs.

Tata Motors, for example, has increased its dealer margins to around 5-5.5% in the past two years. Maruti Suzuki, the biggest car manufacturer, too raised its dealer margins by 16% last year.

As per a recent study by JD Power, 48% of dealers indicate receiving financial assistance to buy spare parts stock in 2014, up from 41% in 2013.

"Only 42% of dealers estimated they will be profitable in fiscal 2014. The situation is more critical for dealerships based in India's six largest cities, with only 31% expecting to make a profit this year," said the study.




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