Industry slowdown hits hard as dealers close shops

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If you happen to catch up to the news every now and then, you would’ve noticed one thing – sales of vehicles, both two and four wheelers dropping. Well, the reality is a bitter pill to swallow. Over the last 2 years, about 205 dealers have shut their 300 showrooms – resulting in about 3000 jobs lost. Their losses amount to a total of about 2000 crores.

So, what caused this?

Increasing rentals and employee costs in major cities are a significant factor. Other factors include wafer-thin margins from financial & insurance companies and liquidity crunch after GST. Before GST, dealers had a couple of months to pay VAT and sales tax on cars. But, after GST, they have to do it upfront, thus hitting their working capital.

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Another serious factor – much overlooked, is the havoc of cab aggregators and self-drive rentals. Combine this with poor parking facility and choking traffic of Tier 1 and Tier 2 cities. Why would one buy a car and go through the hassles of driving/parking it in city traffic when you can call a cab, sit back and relax while chauffeured? The Self-drive service providers also provide for monthly and yearly subscription services – no fuss involved here. All these factors would make variables of the equation, which would explain the CAGR of 4% between FY13 – FY18 (4-Wheelers), while it was only 5% for 2-wheelers. These numbers are against the expected double-digit growth by the automobile makers.

While the market grew by 5-7%, the dealerships have increased by 15-20% squeezing into the already tight business potential of existing dealers. Adding more dealers without properly studying the market demand has not only decreased the sales but have cannibalized existing dealers.

Okay. What are the exact numbers?

In 2017 – 2018, Nissan had 38 dealers shutdown, the highest of all, while Hyundai had 23 dealers shut their shops. Even the leading player, Maruti had about 9-12 showrooms shut. So is the case with Tata, Mahindra, and Honda.

Geographically, Maharashtra saw the most dealers close – at 56 while Bihar comes next at 26. Kerala and Rajasthan stand next, at 19 dealers each closing their business. Citywise, 26 dealers in Mumbai, 21 in Pune and 10 in NCR have shut their shops.

Image source: Economic times

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