India’s Panicked Two-Wheeler Dealers Send An SOS
Dealers of motorcycles and scooters in India were hoping for a better new year as the world’s biggest two-wheeler market was yet to fully recover from the setback of 2020 lockdown and rising costs. But 2021 has turned out to be even worse. Panicked owners of outlets are pleading for help.
As states imposed strict curbs to contain a devastating second wave of Covid-19, showroom traffic collapsed. About 60% of India’s 26,500 auto dealerships sell two-wheelers and rural India is their biggest market. With the virus now ravaging the hinterland, a quick rebound is out of question when outlets are sitting on an inventory of about month and a half on an average. Job cuts and shutdowns loom.
“We could see layoffs and some of them might have to shut shop or reduce the number of two-wheeler outlets,” Vinkesh Gulati, president of Federation of Automobile Dealership Association, told BloombergQuint over the phone. Dealers who don’t have deep pockets will find it difficult to survive without cutting costs or help from automakers.
Sales have dropped because of local lockdowns across India. According to the federation, 80% of the outlets have been forced to temporarily shut down because of restrictions.
The owners of outlets have sought help from the makers of scooters and motorbikes. WhatsApp groups with dealers from multiple states as members keep buzzing with SOS messages.
“It is really very tough time as all OEMs are not giving any support to dealers and also the government is not giving any relief to dealers; then how we will pay our inventory funding which are going to be due this month,” a text on one of the groups viewed by BloombergQuint read.
Gulati said original equipment makers, in informal discussions, have asked to “wait and watch”.
BloombergQuint awaits responses to queries emailed to Honda Motorcycle and Scooter India, Hero MotoCorp Ltd., Suzuki Motorcycle, Bajaj Auto Ltd. and TVS Motor Co. on how they plan to support the dealerships.
“If last year’s sales were bad, this year it is going to be worse,” Shrestha Jaiswal, a Kolkata-based dealer of Honda Motorcycle and Scooter India Pvt., said over the phone. He cut costs to manage expenses by reducing staff and slashing bonuses, he said.
“We have bank loans, EMIs to pay and there is cost of operations as well. Sales were already down 50% last month, and in May there are hardly any walk-ins,” said Jaiswal, who is sitting on a 45-day stock. “We have no choice.”
He has written to Honda Motorcycles through local automobile traders’ association seeking help on interest payment.
About 700 kilometres west of Kolkata, a two-wheeler dealer in Uttar Pradesh is preparing to take a tough call. The Hero MotoCorp dealer, who spoke on the condition of anonymity out of business concerns, said he has asked his HR department to chart out a plan to cut the workforce to save costs. And unlike last time, he cannot afford to wait for the situation to improve as rural demand has tumbled.
A Pile-Up At Dealerships
Nearly two-dozen dealers BloombergQuint spoke with are sitting on more than 45 days worth of of stock. Unlike four-wheelers that saw sales bounce back and also had to scale down production amid chip shortage, two-wheeler outlets struggled despite a good monsoon, a bumper crop and government’s infrastructure spending.
That’s because higher commodity costs forced companies to increase prices. And costlier auto fuel also dampened sales in the market where bulk of the demand comes from units retailing at up to Rs 60,000 apiece (ex-showroom).
“Most of us (two-wheeler dealers) across the industry are carrying a minimum stock of at least a month and that much money is already locked in, and there is interest cost,” Pradeep Agarwal, a Hero MotoCorp dealer from Cuttack and chairperson of Odisha lobby, said. Then there are fixed costs such as rentals, bank loans and salaries, he said.
According to Ashish Modani, vice president at ICRA said, the fresh slump has only amplified what the two-wheeler retailers were already facing.
“In last one year, dealerships had already been working on consolidated operations and were trying to cut expenses,” he said. “Certain dealerships have seen closures too.”
BloombergQuint earlier this month had reported that the lockdown is going to be more punishing for the two-wheeler dealers.
Rural Engine Halts
People load a subsidized ration of grain onto a motorcycle outside a state-run distribution store in a village in Tikamgarh district, Madhya Pradesh, India. (Photographer: Dhiraj Singh/Bloomberg)
The one thing that cushioned two-wheeler auto sales the last time offers no hope this year. Rural demand has fallen as the pandemic is now devastating India’s interiors after leaving urban health infrastructure overwhelmed.
The rural markets will be the last to come out of the lockdown because of weak health infrastructure and poor recording of Covid cases, Gulati said. “This means the recovery in rural market will be the slowest and could extend to two to three months.”
That corroborates with other trends as local curbs have stalled demand for consumer goods to farm equipment. Tractor sales plunged the most among other automobile categories in April, highlighting falling purchasing power in the rural market.
Modani sees the impact on auto dealers lasting for at least two quarters.
The last time, there was loan moratorium and automakers also assisted by offering incentives on billing, and interest support, Gulati of FADA said. While the central bank has allowed one-time structuring of debt, there is a lot of confusion and some more support is expected from the Reserve Bank of India, he said.
The national dealers’ lobby wrote to Finance Minister Nirmala Sitharaman last week seeking an exemption on GST payments for the next three months, a reduction of 400 basis points on the interest rates, and a freeze on repayment of debt during the lockdown period.
If the restrictions extend beyond May, Gulati said, it will be difficult for many dealerships to survive without help.