Following the 21-day lockdown in India, car dealers now have no way to sell or register cars till April 15. The Supreme Court needs to give an extension to sell and register BS4 cars as this is an unprecedented situation, says dealers.
Some of the options dealers are working on with the unsold inventory are to capitalise these BS4 cars on their (dealers) stretched balance sheets and then sell them as pre-owned cars. Each car capitalised will eat into the profit of 20 cars sold in the future. And if these cars cannot be sold as pre owned cars,then it will be torn down for spare parts. The only other option for dealers is to return the unsellable inventory to the OEMs. FADA has already written to all the OEM's through SIAM president on this issue, say dealers.
Post capitalization and selling on discount, dealers will have to write of losses on their balance sheets and this will lead to dealership closures too.
The lockdown imposed in many states has made customer and dealer staff movement come to a halt. More than 20,000 dealer outlets are now shut in the lockdown and many more of our members have voluntarily shut their outlets even in areas where there is no mandatory lockdown to break the Corona chain”, said Ashish Kale, president, Federation of Automotive Dealers Association.
The value of unsold inventory of BS4 vehicles with auto dealers stands at a whooping Rs 6,300 crore plus with manufacturers and dealers at their wits end.
Two-wheeler manufacturers are the hardest hit with more than 7 lac units lying in stock amounting to Rs 3,850 crore. In addition 15,000 units of passenger vehicles and 12,000 units of commercial vehicles remain unsold at a valuation of Rs 1050 crore and Rs 1,440 crore respectively. There is about 10-15% more in each segment of sold vehicles which is waiting to be registered and delivered but not cannot be done due to the lockdown in place.
Said a Mumbai based two wheeler dealer, “We are faced with the worst kind of situation ever. If this is not solved immediately, most dealerships face complete wipe out within months”.
As of last week, we had less than two lakhs BS-IV vehicles with our dealers and the network. In the normal course, our dealers could have easily sold this stock during the balance period in March before the BS-IV deadline. When dealerships in the country have been closed as a result of the lockdown, surely they can’t sell their products and liquidate the BS-IV stock, said a Hero Motocorp spokesperson
"March 2020 was going to be a tough month for the auto industry with so much riding on the BS IV-VI transition and now thanks to COVID – 19 we are in a much bigger soup. In such times, the authorities need to provide immediate relief measures, one which could be extension of the registration deadline by the number of days of RTO closure”, said Som Kapoor, Partner at Ernst & Young.
Manufacturers need to make sure that they help dealers who may need to capitalize cars and their profitability may take a hit. This is as the vehicles would be sold off as pre owned cars which could depreciate the value of a new vehicle by nearly 15%, added Som.
Industry experts maintain that given the development of COVID-19 which should be considered at par with a Force Majeure the courts should extend the registration deadline by the number of days of RTO closure and should make sure details of the extension are applied across all RTO’s in the country. This needs to be done as dealerships have bookings and payments of customers who cannot get cars registered because of closure. In addition, the banking sector is working on skeletal infra and such deals will get stuck from loan approvals. Moreover, due to state borders being shut there are vehicles stuck in transit which cannot be registered, say dealers.
Whatever the solution, it has to be quick with the interests of the dealers being paramount. Else the auto industry may find itself going deeper into a hole which may be near impossible to come out from, day experts.