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A BMW dealership in Moradabad, Uttar Pradesh.
A BMW dealership in Moradabad, Uttar Pradesh.

Covid-19 Impact: Auto dealerships stare at shutdowns, job losses

  • Auto majors including Tata Motors and Mahindra & Mahindra have announced renewed plans to push sales and marketing activity online
  • Slowing demand for vehicles and changing business models will hasten the closure of several dealerships in the coming months

MUMBAI: Bleak demand outlook coupled with shift of sales and promotion activities to online platforms by most auto manufacturers has started worrying dealerships, many of which now stare at stressed financials and significant job losses across India. According to industry experts, job losses could easily touch 25% of 45 lakh strong workforce employed across 17,000 auto dealers, who manage around 30,000 outlets in the country.

While the Federation of Automobile Dealers Association of India (Fada), one of auto industry’s apex lobby bodies, has yet not estimated the number of potential job losses in the coming months, its office bearers told Mint that shrinking size of business would directly impact manpower requirement.

“The auto sales are expected to decline 35-40% in FY2021, if India’s GDP growth remains flat this fiscal. Volumes had already dropped 18% in FY20. This means the auto industry volumes would halve in two years by end-FY21," said Ashish Kale, president, Fada. He added that auto dealerships had seen aggressive expansion over the past five years.

As adhering to social distancing norms becomes the new normal, leading automakers including Tata Motors Ltd and Mahindra & Mahindra Ltd (M&M) have announced renewed plans to push sales and marketing activity online. This is likely to leave several potential job roles redundant in auto dealerships.

Kale maintains that slowing demand for vehicles and changing business models will be the two key drivers that would hasten the closures of several dealerships in the coming months.

“Shutdowns and job losses will happen. However, we will understand the scale of the impact once the lockdown is lifted and all dealerships resume business" Kale said.

According to Kale, fixed costs constitute up to 85% of total costs required to operate a dealership with manpower, rental and infrastructure and bank loan interest costs as leading elements. “Reducing fixed costs would clearly mean reducing the number of outlets followed by reducing the manpower, which is the last option," Kale added.

“Several dealerships are already struggling to pay April salaries," said Nikunj Sanghi, director, international affairs at Fada. The shift to online from offline sales channels, digital channels would have a multiplier effect on the job losses at auto dealerships" added Sanghi.

Fada has appealed to auto manufacturers to share part of their fixed costs, which included extended credit lines for inventory. But Fada officials maintain that no substantial support has come yet. Another immediate demand is the reduction of the inventory holding period to not more than 15 days from the current one-to-two months in most cases.

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