The sudden and sharp fall in sales has put car dealers in a spot. They are straddled with huge inventories and are pleading with manufacturers not to dump any more stock on them. Two have already downed shutters in Mumbai -- one in Prabhadevi and the other in Andheri. Some have curtailed operations and let out some space to others.
In the last three months, hardly any new dealership has come up anywhere in the country. When sales were booming, it was not unusual to see up to 25 new outlets per month. Till not so long ago, it was common to find dealers in a queue in front of car companies, waiting for dealerships. The same companies have now been forced to advertise for dealerships.
Carnation, a venture floated by former Maruti Udyog Managing Director Jagdish Khattar, reckons that at least 250 dealerships face rough weather and could shut shop. All told, there are over 2,000 car dealerships in the country. "Numerous car dealers have approached us either for joint venture partnership or outright takeover of their dealership," said Khattar.
Car sales turned negative for the first time in the current fiscal in the month of July. Sales for the month of November fell a whopping 23.71 per cent, the steepest drop in the last 8 years. December is expected to be no better as potential buyers can get a 2009 model by waiting for a month. Almost 75 per cent of cars in the country are brought on credit. With liquidity on a tight leash, jobs market in the decline and the stock markets volatile, consumers have begun to put off purchases.
Most dealers Business Standard spoke to did not wish to be quoted -- any admission of business conditions turning adverse could drive customers further away. All of them are closely held, so their accounts are not in the public domain.
Privately, most admitted things look distinctly uncertain in the near future. "Times are bad. But the current slowdown will reverse once the Nano is launched. Then the crowds will follow," said an executive of Sanya Automobiles, a Tata Motors dealership.
Top dealers, who sold over 400 cars a month, are now finding it difficult to sell more than 250 or 300. As a result, inventories are up from 15 days to almost two months in some cases now.
"You cannot borrow at anything less than 17-18 per cent. If you hold the stock for two months, it wipes the entire commission of 2.5-3.5 per cent given by the car maker," says Federation of Automobile Dealers' Associations Secretary General Gulshan Ahuja.
To be sure, dealers also make money from service of vehicles and sale of accessories. Industry estimates suggest that in some cases as much as 70 per cent of their turnover comes from allied businesses.
Maruti Suzuki, the country's largest car maker, has built several revenue streams like insurance, spares etc which its 600 dealerships across the country can tap. "Our dealers also benefit the True Value sale and purchase of second-hand vehicles.
Also, about 50 of our car dealers also operate driving schools in association with the company. These additional revenue streams sustain our dealers during the current slowdown," said a company official.
Some sector experts pointed out that though these businesses provide a significant buffer against a slowdown in car sales, these too are linked to car sales and are expected to dip sooner than later.
To get over the situation, dealers are lobbying hard with car companies not to send them new stocks. Some others want to look at other options. "With shrinking margins, most car dealers feel their property could fetch better yields if they turned it, for instance, into a shopping mall or an office complex," said All India Car Dealers' Association General Secretary DS Gill.
Clearly, the boys are being separated from the men and only those with enough financial firepower will survive the slowdown.
"During the boom time which lasted the last 5 years car dealers made good profits. It's these profits that are helping car dealers to ride the current difficult phase. Established cars dealers are holding out," Toyota Kirloskar MD (marketing) Sandeep Singh said.
