Owner, Win Win Group, Bhopal, which runs Mahin­dra & Mahin­dra (M&M) and Re­nault deal­er­ships

India Today - - CASE STUDIES - -Rahul Noronha

What? Over the past few months, Singh has had to close down eight of his 31 deal­er­ships and lay off 300 staff as sales fell 10 per cent for M&M’s sport­su­til­ity ve­hi­cles and multi-util­ity ve­hi­cles. Foot­falls have also plum­meted, by about 30 per cent Why?

“De­mon­eti­sa­tion and GST took a toll first, the sec­ond blow was the hike in ve­hi­cle regis­tra­tion charges from 8 per cent to 16 per cent for the Rs 20 lakh seg­ment”

What next?

Singh hopes sales will pick up around Di­wali and De­cem­ber. “We are hold­ing the cur­rent stock, but for how long [can we af­ford to]? The present stock must be sold be­fore April 1, 2020, when the BS VI norms kick in. Fail­ing this, deal­ers will be forced to reg­is­ter ve­hi­cles in their own names and sell them as sec­ond hand”

an analyst with IHS Markit, estimates that sales should pick up by Oc­to­ber. “Dis­counts will rise by the end of this year to pep up de­mand,” he says. Maruti’s Bhar­gava also has sim­i­lar ex­pec­ta­tions. “Data shows that be­fore the gen­eral elec­tions, peo­ple get cau­tious. Af­ter the elec­tion, they go the other way,” he says. But Sanghi is not up­beat. “I do not see a cor­rec­tion hap­pen­ing in the near fu­ture,” he says.

There ap­pear to be no quick-fix solutions. Un­less the econ­omy rebounds, auto sales will re­main slug­gish. But there are some his­tor­i­cal les­sons that could be ap­plied. The sec­tor saw a down­turn in 2009 and again in 2014—both times, the gov­ern­ment stepped in. In 2009, ex­cise du­ties were low­ered, spurring con­sumer spend­ing,

Cars are al­most in line with ‘sin prod­ucts’ (those that are heav­ily taxed, like to­bacco, to dis­cour­age sales) un­der GST. We have ap­proached the gov­ern­ment for a stim­u­lus” SUGATO SEN, deputy di­rec­tor-gen­eral, SIAM “Changes are wel­come, but what puts us in a tizzy is the speed at which reg­u­la­tions are chang­ing. It be­comes dif­fi­cult to pre­dict when to invest and in what tech­nol­ogy” RAM VENKATARA­MANI, pres­i­dent, ACMA

and in 2014, the gov­ern­ment an­nounced that un­der the Jawa­har­lal Ur­ban Re­newal Mis­sion, state gov­ern­ments would pur­chase com­mer­cial ve­hi­cles, boost­ing the in­dus­try. TAX BREAKS: At present, small cars at­tract a cess of 1 per cent, small diesel cars at­tract a cess of 3 per cent, medium cars a cess of 18 per cent, lux­ury cars a cess of 20 per cent, and SUVs 22 per cent. This is over and above GST, at 28 per cent. In­dus­try fig­ures want GST re­duced to 18 per cent, with M&M’s Goenka sug­gest­ing that the gov­ern­ment re­move the cess on small cars and keep a sin­gle rate of cess of 17 per cent for all oth­ers for the next four to six months. “It won’t lead to a ma­jor loss of rev­enue,” he says. “And if this re­vives the auto in­dus­try, the re­turns will far out­weigh the cost.” Sugato Sen, deputy di­rec­tor gen­eral, SIAM, agrees: “Taxes on cars are al­most in line with ‘sin prod­ucts’ (those that are heav­ily taxed, like to­bacco, to dis­cour­age sales) un­der GST. We have ap­proached the gov­ern­ment for a stim­u­lus.”

EASE FI­NANCE: Jagdish Khat­tar, for­mer manag­ing di­rec­tor of Maruti Suzuki, says that the pri­mary prob­lem is fi­nanc­ing—es­pe­cially in the small-scale sec­tor, which com­prises as much as 70-80 per cent of the in­dus­try. Bhar­gava says he hopes the gov­ern­ment and the RBI will re-ex­am­ine the col­lat­eral pol­icy for lend­ing to NBFCs and im­prove access to af­ford­able credit. Rate cuts have not been passed on to the con­sumers and banks con­tinue to be wary of lend­ing.

STAG­GER POL­ICY ROLL­OUTS: A gen­eral view in the in­dus­try is that the gov­ern­ment should take a stag­gered approach to new reg­u­la­tions. Ba­jaj points out that shift­ing from con­ven­tional fu­els to re­new­ables can­not happen overnight. It re­quires prepa­ra­tion and investment by man­u­fac­tur­ers, ven­dors and af­ter­mar­ket service firms. Some say the sit­u­a­tion is sim­i­lar to what hap­pened in the hous­ing sec­tor, where a com­bi­na­tion of reg­u­la­tory changes—RERA di­rec­tives—and an eco­nomic slow­down have sad­dled the sec­tor with poor sales and large stocks of un­sold in­ven­tory.

ECO­NOMIC STIM­ULI: Con­sump­tion can­not rise with­out im­proved con­sumer con­fi­dence, which re­quires the econ­omy to im­prove. Although India is ex­pected to grow at 7 per cent this year, bleak eco­nomic news—the lack of jobs, the down­siz­ing in sev­eral sec­tors and the NPA cri­sis—has damp­ened con­fi­dence. More pol­icy in­ter­ven­tions are re­quired to boost busi­ness and con­sumer sen­ti­ment.

Of­fer­ing some hope, Bhar­gava says that gen­eral eco­nomic con­di­tions are favourable. Elec­tion re­sults have in­creased optimism and stability, he says, adding, “con­fi­dence in Naren­dra Modi is high, and th­ese are favourable fac­tors”. That said, a quick gov­ern­ment in­ter­ven­tion is still nec­es­sary, as is a change of tack by man­u­fac­tur­ers to adapt them­selves to the new nor­mal. But in the end, un­less the econ­omy rebounds, the cri­sis is likely to con­tinue. ■

-with in­puts from Rahul Noronha


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