Dealers knock at the Prime Minister's door as automobile sector hits snag

For the last 15 months, the automobile industry has been gripped by an unexpected and severe slowdown

Automobile dealers have sought the inclusion of wholesale and retail trade, as well as repair of motor vehicles and motorcycles, in the MSMED Act with retrospective effect from April 1, 2020.

The prevailing slowdown in the automobile sector has forced over 275 dealerships to shut shop, rendering thousands jobless. Auto dealers do business worth anything between Rs 10 crore and Rs 1,000 crore, but most are family-run small-scale enterprises spread across nooks and corners of the country. 

Dealerships on an average employ 70-150 people. The majority of the workforce is hired locally, and the employees needn't be displaced from their current place of stay. Federation of Automobile Dealers Associations (FADA) said it is taking the issue of a complete change in the business model with the Society of Indian Automobile Manufacturers (SIAM) .The objective is to help dealers cope with the after-effects of Covid-19 and any future disruptions.

FADA, the apex body of automobile retail in India, said Covid-19 has come as a shock to all as the Indian auto industry was preparing for recovery in sales growth after 15 months of downturn. FADA represents over 15,000 auto dealers having 25,000 dealerships including 30 associations of automobile dealers at the regional, state and city levels. FADA members account for 90 per cent of automobile sales and service in India. They employ over 4 million people at dealerships and service centres across the country. Some 2.5 million are direct employees and the remaining 1.5 million are indirectly dependent on dealerships for their livelihood.

"The auto industry has already been under a severe slowdown for the past 15 months. More than 275 dealerships had to shut down during this period and thousands of jobs were lost in the process," said FADA in a letter to the Prime Minister. "A new normal growth rate is going to be set post Covid-19, which is projected to be far lower than the one under which we have been operating in recent times."

SIAM has projected that the country will witness a huge drop in auto sales, which could be as high as 35 per cent for some segments. This is over and above the 18 per cent decline in FY20, said FADA.

"If not supported in such a scenario, many auto dealers will go out of business and the livelihood of hundreds of thousands of employees will be impacted," said FADA.

To help the community during the crisis, FADA asked the government to consider a complete waiver of interest on all loans from banks and NBFCs for the period, and extension of 4 per cent interest subvention/subsidy on working capital loans to companies for a period of nine months after the lockdown is lifted. It also wants the Centres to allow 20 per cent additional overdraft on sanctioned credit limits for six months to support salary disbursements and other fixed expenses.

Employees salaries during the lockdown period should be paid through ESIC as this is a health pandemic, said FADA.

FADA also asked the government to include wholesale and retail trade and repair of motor vehicles and motorcycles in MSMED act from April 1.The subsidies and incentives received under the MSME division will provide much-needed relief to auto dealerships. 

To boost the auto demand and to overcome the dent in consumer confidence to some extent till complete economic normalcy is restored, FADA has asked for a reduction in GST for a temporary period in order to stimulate demand. It also wants depreciation benefits extended for the current financial year, an incentive-based scrappage policy, and priority sector tag for the auto sector.