In conversation with Nikunj Sanghi, Chairman of Automotive Skill Development Council
In a conversation with OVERDRIVE, Nikunj Sanghi, chairman, Automotive Skills Development Council and a former president of the Federation of Automobile Dealers Association of India, shared his opinions on how the post-lockdown world will work for the automobile dealer fraternity and the consumers they serve.
Opinion on the stimulus package announced by the finance minister for the country:
A positive step by the government and it will ensure liquidity in the auto sector. But, additional working capital limits to the Ministry of micro, small and medium enterprises (MSME). This means that dealerships won't benefit directly, as they do not come under MSMEs. But as far as the banks are concerned, dealerships do get into the same category.
Widening of MSME is also a positive sign, a lot of dealers that were not getting registered as MSMEs will now be taken into consideration because of services being included and the turnover limit has also been increased, it is either of the two. The FADA is in touch with the MSME ministry and fortunately, the honourable minister Nitin Gadkari has assured all help in case of clarity, whether dealerships will be covered under MSMEs or not.
Some measures that have been taken to make cash available during these unprecedented times include reducing the TDS by 25 per cent, reduction of TCS by 25 per cent and two per cent of PF will also be reduced. All these efforts will result in more money being available with the consumers. But, no direct benefit for auto dealerships as of now.
There is hope that some benefits will be given to the automotive business because it contributes to 50 per cent of the manufacturing GNDP. And it is also the largest employer in the organised sector. The government recognises that and there will be some stimulus for the auto industry.
The challenges faced by the auto industry:
The automotive industry is now used to disruptions, it has been happening for the last three years. It started with the BSIII-BSIV transition. The automotive industry was given a four-day window to switch and complete the transition, from March 27 to March 31, 2017. That was a difficult task and a lot of safety norms have also been included which increased the cost of acquisition.
The insurance regulatory authority ordered that five years of third party insurance was mandatory for two-wheelers and three years for cars. That also raised the cost of acquisition. And then the BSVI transition in the middle of a nationwide lockdown. Among all these disruptions, automotive dealerships have been trying their best to survive and it was something not anticipated. The dealerships had BSIV inventory that had to be dealt with and the nationwide lockdown certainly became a hindrance.
If the lockdown was not initiated, would the BSIV inventory be fully liquidated?
The lockdown was a huge disruption right in between the transition from BSIV to BSVI. Both manufacturers and dealers planned their BSIV inventory in such a way that it would have been easy to liquidate it well before 31st of March if it wasn't for the nationwide lockdown. And not only liquidating them but get them registered as well.
The 1st week of March was when the news started to spread about the Coronavirus infection in India, and by 20th of March several states started declaring lockdown partially and 100 per cent lockdown happened before last week of March. Since no manufacturer was prepared for this, the dealerships were pushed into a situation where they had to get into a distress sale of BSIV vehicles. Because of the lockdown, all the government bodies like the RTO and other government offices were shut. This made it impossible to register the sold BSIV vehicles. So, the dealers had no option but to go to the Supreme Court for some relief. It was a big step that was taken by FADA without involving the manufacturers. The dealerships got partial relief and the Supreme Court extended the deadline from 30th March to 31st April for all BSIV vehicles that were sold but unregistered. Dealerships were also wanting an extension of the deadline for liquidating the BSIV stock post 31st March. The Supreme Court gave relief for 10 per cent BSIV vehicles to be liquidated within one week before the lockdown was lifted. It mitigated some problems for the dealers.
Do you think consumer behaviour will change after lockdown?
It will be a new world with some positives and some negatives. With social distancing becoming the new norm, people will not prefer mass transport. This includes buses, railways and shared mobility like taxis and cabs. There will be a shift to personal mobility and consumers will prefer their own personal mode of transport for the safety of themselves and their families. The negatives include the new work from home culture, 75 per cent of the employees won't travel to work. This will reduce the requirement for mobility. People will look for cheaper modes of transport and it is good news for entry-level cars and two-wheelers. An apt example would be how the automobiles sales picked up in China after the lockdown. Sales will come back to the auto industry in a gradual and phased manner.
The impact of the lockdown has crippled the economic system. Will people be in a hurry to buy cars instead of saving money?
The sales won't climb up immediately, it is a long-term perspective. It may take around 18-24 months. People have lost jobs, closed businesses and suffered losses. Specifically small traders, MSMEs and small businessmen. They were going through trouble and it won't come back easily. It will be a slow and gradual climb.
Do you see a purchase shift from premium cars to entry-level vehicles?
There will be a shift because everyone wants to conserve cash, people have understood that liquidity of cash is critical to survive the lockdown and such situations. The dealerships that have resumed operations already witnessed a shift to cheaper purchases. It is still too early to comment on that, but logically there will be a shift to smaller cars and affordable two-wheelers.
What will be the catalyst to bring the auto industry back on track?
Government's support will be a huge helping hand to the auto sector while it tries to get back on its feet. This will include temporary reduction of GST, depreciation benefits for vehicle owners, auto loans getting into the priority sector and a scrappage policy. Nitin Gadkari said it will come up very soon and hopefully, it will have sufficient fiscal incentives. There are multiple factors that can help the automotive sector get back in full steam and it will also take a positive sentiment to do the trick.
What measures are taken by dealers to cope up with the current situation and what are the future plans?
The manufacturers and the dealerships have agreed to trim down the inventories drastically. Dealerships are now opting for a pull-inventory, it essentially means that vehicles will be brought to the dealership when a customer wants it. Low inventory will become the norm and it will result in a reduction of cost. Dealerships will focus on the productivity and efficiency of the workforce, considering the fact that initially dealerships will be working at less strength. Multi-skilling and upskilling of the staff will be a by-product of these changes.
Dealerships will be aided by digital platforms and online services to access far more customers and enquiries. Most manufacturers have already launched their online platforms to reach their customers. Dealerships need to take their own digital initiatives to reach the customers, this will include mobile application and websites.
Will the vehicle delivery time be delayed more than usual because of the new changes?
Since customers are now buying everything online, be it groceries or daily products and they wait for lucrative deals and discount offers hosted by companies like Amazon and Flipkart. The same principle will work fine on vehicle shopping as well. People would want to wait for their desired model with their favourite variant with other options. There will be a drastic change in consumer behaviour in the post-lockdown world regarding the purchase of vehicles.
Will leaner workforce impact on the service quality? If yes, then how?
The auto industry has been the fastest to change according to situations in the past and it will continue to do so. But these changes in layout and workforce strength will not come at the cost of sacrificing service quality. The customer experience will not be compromised, the staff will be more efficient and productive.
Will the customers react positively to the digital wave or will they still prefer the old way?
The physical aspect is very important and that has not been eliminated completely. Customers will still be able to touch and feel the vehicle, but that would happen in their comfort zones. Basically, the footfall to the dealership will be reduced, but the dealers will reach out to the customers. Even for services, there will be a pick and drop facility available. Customers are now capable of exploring without geographical boundaries. And dealers have to get used to dealing with customers virtually.