Monday, April 13, 2020

Automobile Retail Industry’s 2nd set of submissions regarding the challenges posed due to Coronavirus disease (COVID-19)

Dear Sir,
Greetings from Federation of Automobile Dealers Associations (FADA), the apex body of Automobile Retail in India!

Founded in 1964, FADA India represents over 15,000 automobile dealers having 25,000 dealerships including 30 Associations of Automobile Dealers at the Regional, State and City levels accounting for 90% of Automobile Sales and Service in India.

Together we employ over 40 Lakh Employees in the Country at Dealerships and Service Centers with 25 lakh direct employees and another 15 Lacs are Indirectly Dependent on Dealerships for their Livelihood. Auto Sales has a Positive Impact not just on the Manufacturers and Dealers but also has a multiplier effect in the Economy. Sale of 1 vehicle benefits many. Banks, Insurance Companies, Component sales, sale of oils, paints, glass, plastic and rubber and many more along with Generating direct and indirect employment.

COVID-19 has come as a shock to all of us as the Indian Auto Industry was Preparing for recovery in Sales Growth after 15 months of a downturn.
A new normal growth rate is going to be set, post the COVID-19 which is Projected to be Far lower than the normal, 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% for some Segments. This is Over and Above the 18% De-Growth of FY20.
If Not Supported in Such a Scenario, Many Auto Dealers Will Go Out of Business and along with them the Livelihood of Hundreds of Thousands which we Employ.
1. Auto Dealers businesses ranges from Rs 10 Cr to Rs 1,000 Crores, but majority of the Auto
Dealerships are family run small scale businesses spread across every nook and corner of the
country. Each Dealership on an average employs 70-150 people. Majority of the employment is
hired locally thus not displacing them from their home locations.

2. For the last 15+ months, the Auto Industry has Already been under an Unexpected Severe Slow
Down. More than 275 Dealerships had to Shut Down During this Period and Thousands of Jobs were
Lost in the Process.
We would like to bring to your notice following Suggestions which needs your immediate attention with a Request for Urgent Action. These Suggestions if acted upon immediately, will help us remain afloat in these unprecedented times and also help save Lakhs of Jobs in the Process.
1. Working Capital Support
a. Reset the Clock For the Period of the Lockdown for Auto Dealers on All Working Capital
Limits.(Complete Waiver of Interest on All Category of Loans from Banks and NBFC’s for the
b. Extend 4% Interest subvention/subsidy for working capital/loan requirements to companies
for a Period of 9 months Post the Lock Down
c. Allow 20% additional overdraft on sanctioned Credit limits for a Period of 6 months Post
Opening to Support Salary Disbursements and Other Fixed Expenses Cash.

2. Salary of Employees for the Lock Down Period Should be Paid through ESIC as this is a Health
Pandemic and Salary Liabilities Should be Covered under the Same by ESI.
3. Grant of MSME Extension to Auto Retail: We request the Government to kindly include Wholesale and Retail Trade and Repair of Motor Vehicles and Motorcycles in MSMED Act from 1st of April. A Request to the MSME Ministry has already been Put up with Details in the Month of September 19 and we request Fast Tracking and Immediate Favorable Consideration. The subsidies and incentives received under the MSME division will provide much needed relief to Automobile Dealerships which provide direct and indirect Employment to Lakhs.
These Temporary Support are Extremely Urgent and Important to help us Cushion the Shock to Our Cash Flows and the Only Way for us to Continue in Business till demand comes back to Normalcy.
Demand Restoration The Post Covid Scenario is Expected to Dent the Consumer Sentiment Further and Till a Complete Cure is not Found, Confidence on Spending will be Very Low with the Fear of Another Lock Down Hanging Out there.
We would hence like to Suggest Demand Boosters which if implemented, will attract Auto Demand and Overcome the Dent in Consumer Confidence to Some Extent till Complete Economic Normalcy is Restored:
1. Reduction of GST or Direct Benefit Transfer: A Reduction in GST for a Temporary Period will lower the Cost of Acquisition and will Be a Good Incentive towards stimulating Demand.The Automotive Sector is impacted by very High GST Rates and the net impact ranges from 29% to 50% depending on the category of the vehicle. Alternatively a Direct Benefit to Consumers of 3-4% Interest Rate Reduction Through Banks and NBFC’s will also reduce the Overall Cost of Owning a Vehicle and can also be an Alternate or Additional tool for Demand Generation

2. Extend Depreciation Benefits For FY21 and Include Individual Buyers: To boost vehicle demand
further, we request that Corporate Depreciation Scheme which was valid till 31st March’20 be
extended till FY 2021. Apart from this we also propose that similar benefits be allowed to individuals
for FY2021 at an effective rate of 25% (WDV). This will not only help in increasing the number of
individuals filing their IT Return but will also help in igniting automobile demand from individuals and will thus up the GST collection for the Government.
3. Attractive Incentive based Scrappage Policy: should be introduced immediately for all vehicles which are running on road prior to 2010. The “Cash for Clunkers” programs in USA and EU should be looked into as they were implemented successfully. Evidence shows that “Cash for Clunkers” saw its best response during economic downturn/recession and Preponed their Purchases due to The Incentives Offered, thereby Boosting the Demand Engine. “Cash for Clunkers” scheme was introduced for a short time period of 5-7 months. It has been used as a demand revival tool at different time points in the West.
4. Priority Sector tag for Auto Industry: The Government should include Auto Industry in Priority Sector lending so that both Retail and Wholesale Financing can be made available easily. This will also help the banks allot a certain portion of their funds for this sector Both for Dealers and Retail Customers and Ensure the much-needed Credit Support to Spur Demand. The priority sector tag can be given to the Auto Sector for a period of 12 months till normalcy is restored.

The Current Situation Can Lead to an Existential Situation for Many of Our Members and Their Employees.
Majority of them are Small Scale Family Run Businesses with No Financial Sustenance for Such a Crisis after already having gone through a tough period in past 15 months.
Over the Years Auto Dealership Business Model has come under Severe strain with Increasing Costs and Low Operating Margins Thereby Reducing Our Sustenance Towards any Such Shocks as this Current Corona Situation and its After Effects.
While We are taking it up With SIAM at a Complete Change of the Business Model to Build up Sustenance for the After Effects of Covid1-19 and for any Future Disruptions, the Immediate Situation is Extremely Bleak if not Supported.
We hence Earnestly Appeal to a serious consideration to our requests and suggestions and due recognition as Being One of the Contributors Towards Our Nations Past, Current and Future Progress.
In Anticipation of Support from You and Assuring you of Complete Support from the Auto Dealership Community, together we will fight and eradicate Coronavirus from our Country.
Hoping and Praying for Our Country and Humanity to Overcome this Crisis at the Earliest.
Yours faithfully,
For, Federation of Automobile Dealers Associations (FADA)


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