New Delhi: At a time when Indian auto sales is hitting a new low every passing month and dealer closures has become ubiquitous, the retailers are struggling to recover from the incessant liquidity crunch.
What’s worsening the situation for Indian automobile dealers who probably pay one of the highest capital cost compared to their global counterparts is spike in working capital which has doubled post GST implementation.
This has also resulted into lack of capital to fund the necessary monthly expenses such as rent, utility bills etc.
Looking at the increasing number of NPA and defaulters coming from the business segment, the banks have also cut the limits by 50 per cent for automobile dealers. In order to maintain viability in the near term, many dealers have come up with several strategies which can at least help them manage their fixed cost and help them in possible cost reduction.
One of the major steps taken by several dealer principals is to focus on increasing the efficiency of their workforce and freezing the hiring for the coming months while if the situation worsens some will resort to job cuts too.
“Our focus for this year is just to improve productivity. We are pushing the targets for our existing sales lead instead of hiring new people for the next few months. However, if targets are met, we will hire more people as per the requirement,” Charanjeet Nagpal, Dealer Principal of Prem Motors said.
He further emphasized that fine training and re-skilling of the existing employees also becomes important for enhanced productivity.
Another dealer principal, Hemang Parikh of Unnati Motors is working on improving their focus of micro-management along with improving efficiency. “We need to work on the efficiencies and the through-put per sales consultant for every month should be at least 5 cars. The inventory cost, rental and manpower cost have to be under control. Thus, it is important to focus on profit and loss account,” Parikh said.
According to him, major decisions should also be taken on consolidation of outlets if any single one is in losses. This can better the balance sheet of a dealership. Moreover, Parikh said, a good amount of reviews should go on how to make aftersales experience better.
As a major chunk of revenue comes from services, therefore, services can play a significant role going forward and compensate for the losses in sales business.
Amit Garg, dealer principal of Rs 1,000 crore group, Shiva Motocorp believes that there is a dire need of innovative ideas to tackle such tough situations. One such example he mentioned was switching to solar energy to power outlets. However, this would require huge investments initially but can save electricity bill of crores of rupees.
A multi-brand and 24 outlets big dealership can save upto Rs 5-6 crore each year once the solar panel investments break-even.
Garg has further been able to cut some of the expenses by using digital means. “We have stopped print advertising, which costs a lot. Advertising through digital means have proven to be cheaper and impactful than print,” Garg said.
Additionally, the dealership has cut some deals with wholesale retailers and switching telephone and internet connections for minor reductions monthly expenses.
While dealers believe that all these steps for cost reduction can somewhat improve their liquidity situation, industry veteran Rakesh Batra feels that this can help them improve their profitability to an extent. “As far as working capital is concerned, they need to check where that capital is invested,” he said.
According to Batra many dealers have receivables from their customers (fleet/others). If dealers can collect that money, it can be utilised to buy more vehicles and reduce their working capital utilisation with banks. “However, in the current year, working capital and cost of capital along with the availability of capital will be one of the biggest issues,” Batra added.