Dealerships Shut Showrooms, Cut Jobs To Survive Auto Slump
For three months, Manoj, a car salesman, missed targets. Last week, after having worked at a dealership in South Delhi for three years, he was sacked. But he wasn’t an underperformer.
There weren’t enough inquiries and car sales, the engineering graduate told BloombergQuint over the phone—he didn’t want to give his full name or identify the auto dealer out of employment concerns. “I was told they’ll be not be able to pay my salary as the market is down,” said the 27-year-old, who supports parents and a younger brother, and has to pay monthly instalments for a motorcycle. “Neither can I go back home now nor can I live in Delhi without a job for more than a couple of months.”
He isn’t alone. About 25,000-35,000 people have lost jobs in the last year and nearly 271 car and two-wheeler showrooms shut across India as fewer Indians are buying vehicles, according to data provided by the Federation of Automobile Dealers Associations. While that may only be a fraction of the 2.5 million people employed in the 25,000-odd showrooms across India, it underscores the human cost of the slowdown, and job cuts could turn worse if it persists. BloombergQuint has already reported how the slump has promoted auto and part makers to lay off contract workers.
Sales of cars and utility vehicles have fallen for nearly a year in India’s worst auto slowdown in a decade, according to numbers disclosed by the Society of Indian Automobile Manufacturers. Sales at dealerships, measured by new vehicle registrations, too, slumped in June to an 18-month-low. And lack of demand for vehicles is one of the many indicators of a slowing consumption in the economy, which grew at the slowest pace in 20 quarters in the three months ended March.
After a poor Diwali season last year, everyone expected the slowdown to be a blip, and continued investing hoping for a bounceback, according to Vinkesh Gulati, vice president of FADA, who runs a Mahindra car dealership in Faridabad. “But that didn’t happen by April, and everyone understood that the slowdown is real and is here to stay.”
Showrooms are trying to cut manpower and inventory costs, both of which account for about two-thirds of overall costs, he said. Nearly 5,000 people are being laid off nationwide every month as dealers tighten their belts, according to Gulati. In the last two months, he himself laid off 25 people. If the situation doesn’t improve in the next two months, Gulati said he may have to let go another 10-15 people. “When the going gets tough you have no choice but make two people do the work of five.”
A Delhi-based dealer for Mahindra & Mahindra Ltd. told BloombergQuint, requesting anonymity out of business concerns, that he had to lay off about 40 people in the last two months and shift to a smaller outlet to cut rental costs. There are other ways dealers are looking at reducing operating costs.
Dealers Consolidate To Survive
Among the 271 automobile showrooms that shut in the past year or so, 34 were in Mumbai, 27 in Delhi, 15 in Pune and 14 in Chennai, according to FADA.
That, according to Ashish H Kale, president at FADA and who has shut three outlets of his own in the last two months, is because operating costs in state capitals and tier-I cities are higher compared with smaller towns.
Nissan Motor Co. lost the highest number of dealerships in the last year and a half at 44, according to FADA, followed by Hyundai Motor Co. at 39. And Maharashtra and Tamil Nadu led states with highest dealership shutdowns.
Ankit Raj, an Allahabad-based dealer for Hero MotoCorp Ltd., told BloombergQuint he is focusing on clearing his existing inventory. “The best measure to survive is to clear the stock without focusing on margins and liquidate,” he said. “You have to understand one cannot make money from sales right now. You just can’t.”
The average inventory period was the highest for two-wheelers at 60-65 days in June—more than 30-35 days for passenger vehicles, according to FADA. Retail sales of two-wheelers declined 5 percent over last month compared with 4.6 percent for passenger vehicles.
Another dealer for Hero MotoCorp in Uttar Pradesh told BloombergQuint requesting anonymity that if one doesn’t clear inventory within 15 days of invoice generation, an interest cost of over 12 percent is involved. This dealer said it’s better to service interest costs than accept fresh inventory that may take a long time to get sold.
Other dealers that BloombergQuint spoke to suggested that automakers should hand-hold dealers to help increase their margins and ease their interest burden on inventory. “While dealership standards in India are among the best in the world, margins are among the lowest,” Kale said.
Even the entry of new companies such as KIA Motors Corp. and MG has neither helped dealers, nor boosted hiring. “Kia and MG are operating at half the manpower a typical car dealer would require as they’re moving digital as well,” Gulati said, referring to their online ventures.
Tata Motors Ltd. didn’t respond to emailed queries citing silent period, while Mahindra & Mahindra declined to comment. Maruti Suzuki India Ltd., Hyundai Motor Co., Nissan Motor Co. and Ford Motor Co. didn’t respond to BloombergQuint’s emailed queries.
Renault SA said the closure of its 21 dealerships in India “isn’t factual” as the company ensured that in the case of unavoidable closures, such facilities are either taken over or newer facilities are created in the same market. The automaker, however, admitted that the majority of closures happened because of financial concerns.
All Hopes On Diwali
Dealers are pinning their hopes on the upcoming Dussehra-Diwali festival season for a revival. The fear is while the slowdown is restricted to metro cities and tier-I and tier-II cities, it will trickle down to smaller towns if the situation doesn’t improve.
“If the season goes bad, we are in for a difficult ride. Festive season gives 25 percent of the annual volumes,” Gulati said. “A lot is riding on the sale season.”
As for Manoj, he isn’t giving up. He’s searching for jobs at other showrooms in Delhi at a reduced pay as he planned to bring his parents over soon. “But wherever I go, I am told there’s a hiring freeze.”