Car sales slump: Mahindra MD fears dealers may go bankrupt

Updated: August 19, 2019 6:52:29 AM

Goenka said job losses could be more in the suppliers and dealer fraternity. “I am more concerned over suppliers and dealers, and less about OEMs and that is only because OEMs have an ability to withstand a slowdown longer than the suppliers,” he said.

Auto slowdown, Mahindra MD, Mahindra, M&M, Pawan Goenka, industry news, Automobile Dealers Association,  dealer fraternity,Auto industry, automobile industryMahindra & Mahindra, MD Pawan Goenka

By Pritish Raj

With poor auto sales leading to thousands of job losses across the value chain, Mahindra and Mahindra (M&M) managing director Pawan Goenka says the next big fear is of suppliers and dealers going bankrupt if the upcoming festive season turns out to be a dampener in terms of demand.

“If we miss this festive season and don’t see a turnaround, there will be a significant negative effect in terms of jobs, investments and bankruptcy. Many suppliers may have to declare bankruptcy because not everybody has the deep pockets to stand a long slowdown like this,” Goenka said, adding there has already been 12 months of slowdown which is very long. His comments come after shutdown of over 300 dealerships in the last one year that led to loss of around 2 lakh jobs, according to Federation of Automobile Dealers Association. As per the Society of Indian Automobile Association, around 15,000 people have lost jobs in the sector in the last 3 months.

Warning of further job cuts, Goenka said M&M had to let go of around 1,500 temporary workers since April. “We are trying not to remove more but if the slowdown continues, we would probably be forced to,” he said on the sidelines of the inauguration of M&M’s first passenger car assembly plant in Sri Lanka.

Goenka said job losses could be more in the suppliers and dealer fraternity. “I am more concerned over suppliers and dealers, and less about OEMs and that is only because OEMs have an ability to withstand a slowdown longer than the suppliers,” he said.

M&M is also considering trimming or deferring the planned investments for this year, in line with most manufacturers who have hinted at putting future investments and expansion plans on hold due to uncertainty over demand in FY20 and beyond. “On the capex side, we have about 15-20% capex that is being deferred,” Goenka said.

Over the last one year, vehicle ownership prices have gone up by 10-15% across segments due to hike in insurance costs, safety norms related costs and expensive finance options. What is more worrying is the cost of ownership that is expected to rise even further by April 2020, when the new BS-VI emission norms kick in, which Goenka thinks will further impact demand.

While several factors have come together to contribute to the sharp decline in sales, Goenka said the impact has been mostly due to lack of optimum wholesale and retail financing and increase in transaction cost. He added that the only way the demand can revive is through a temporary policy support. “If I go back to previous two periods of slowdowns, a fiscal stimulus was given and both times they have worked. A stimulus has to be temporary, just to get the positive momentum back, not necessarily a permanent one,” he said.

Admitting that the government has little room for a GST cut on automobiles which has been a long-standing demand of the industry, he said the government can take several measures on the non-revenue side to pent up demand. “Something for NBFCs and PSU banks can be done to see how better financing is given to dealers and retail customers and that is not a revenue problem for the government, it is a question of what RBI is doing in terms of policy rates, it is about relaxing some of the norms which were perhaps for the right reasons made tight,” he said.

On the non-revenue impact side, Goenka suggested bringing back the third-party insurance requirement to one year and elimination of 1% TDS.

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