FADA in a letter to Sitharam requested for an exemption on payment of GST for the next three months, reduction in payment of provident fund for employees and reduction in interest rates on loans taken by dealers by 400 bps
India’s automobile dealers on Thursday urged the Finance Ministry and Reserve bank of India to take multiple steps to help auto dealers tide over the current lull in businesses because of the exponential rise in cases of Covid-19 which has necessitated shutting down of showrooms across states.
The representative body of auto dealers, Federation of Automobile Dealers Associations in a letter to Finance Minister Nirmala Sitharam requested for an exemption on payment of Goods and Services Tax for the next three months, reduction in payment of provident fund for employees and reduction in interest rates on loans taken by dealers by 400 basis points.
“Currently, lockdowns are being imposed by most of the state governments to break the chain of virus. This will not only have an adverse financial impact on dealerships but many being small family run enterprises may not even survive by the time the second wave comes to an end. Also, this time around, rural areas have also taken a big hit as auto registrations for April was down by a massive 28%," said a Fada in a letter.
In a separate letter to the RBI, dealers have requested the central bank to direct public and private banks not to charge any interest on loans taken during the period of the lockdown in different states. They also asked the central bank to extend benefits of loan restructuring, announced for MSMEs on May 5, to the auto dealers as well.
In a letter written to RBI governor Shaktikanta Das on Wednesday, Fada mentioned that currently revenue for most of the dealers are nil but expenditure stands as it includes expenses like, wages, salaries, rent and electricity of showrooms, workshops and stockyards. Dealers also have to pay the loan they have taken for banks for buying inventory from the auto companies.
“RBI in its circular dated May 5 has already announced benefits to MSME’s by extending the benefits for restructuring existing loans without a downgrade in the asset classification. In this regard, the RBI should instruct banks to pass on the benefits of the above circular to all auto dealers who are registered under MSME and who approach the banks without any delay," said FADA.
The letter further added that inventory funding for Auto Dealers generally have a payment cycle of 30 -90 days. Due to lockdown since there are no sales it will be difficult for dealers to repay the loans, which might lead to a default by the borrower and will consequently bring down their credit ratings.
Manufacturing and sales of automobiles came under pressure from the first week of April when the state government of Maharashtra announced lockdown measures to contain the rising cases of Covid infections. Subsequently other states like Delhi, Haryana, Karnataka, Tamil Nadu and others also followed suit.
Most vehicle manufacturers have either stopped production at their factories or reduced output significantly. Some manufacturers like Tata Motors and Bajaj Auto Ltd have been continuing with production albeit with limited capacity. Due to regional lockdowns showrooms also have to remain shut, impacting sales.
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