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In India, the auto retail sector employs around 4.5 million people at dealerships and service centres, the backbone of auto sales, which got severely impact during Covid
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Apex industry body, the Federation of Automobile Dealers Associations (FADA), under VINKESH GULATI, the 35th President, took a number of initiatives to help keep the operations running without any glitches. Gulati speaks to Ashish Sinha on key initiatives and decisions impacting the sector. Excerpts:
You became the president in 2020, an extremely challenging year for the sector. What were some of the key challenges? How were they tackled?
Auto dealers pay significant taxes, provide employment as well as on-job skilling and up-skilling and enable customers to access and pick their choice of vehicles. Dealership operating costs are skyrocketing whereas dealer margins from OEMs are the lowest globally, making it difficult for dealers to remain profitable. The term 'automotive sector' is generally perceived as the sector dealing with cars, whereas 70 per cent of it is covered by two-wheelers. Therefore, FADA established a two-wheeler dealer vertical, which will specifically focus on their issues.
FADA is working hard for the enactment of the Auto Dealers Protection Act along the lines of those prevalent in countries like the US, UK and Australia. The dealer agreements are tilted in favour of OEMs in India. In fact, an OEM which operates abroad as well as in India has different dealer agreements. FADA has also prepared a 'model dealer agreement' after studying around 100 global and Indian OEM dealer contracts so that Indian agreements can be fairly balanced. FADA has worked hard and managed to get dealerships included under the MSME ambit.
What would be the impact on dealerships after they come under the definition of MSME?
With the consistent effort of FADA the auto dealers have finally come under the ambit of MSME. Udyam (MSME) Registration for auto dealers (NIC Code: 45) has now been enabled and shows wholesale and retail trade as well as repair of motor vehicles and motorcycles. Ashish Harsharaj Kale, the previous president of FADA helped lay a strong ground for taking up this initiative with the respective ministry. This initiative will play a vital role in the revival of the dealer fraternity. The inclusion in the MSME ambit would enable the dealer fraternity to avail benefits like loans without collateral, eligibility for industrial promotion subsidy, protection against delayed payments and a lower fee for credit rating, to name a few.
Take us through the benefits of amendments to the Central Motor Vehicle Rules (CMVR) Trade Certificate.
Our consistent engagement with the Ministry of Roads, Transport and Highways has resulted in FADA’s stronger contribution to the draft amendments in certain provisions of the CMVR in terms of the rules as well as the trade certificate. The draft amendments include online application and renewal of trade certificate; validity of trade certificate for 5 years; issue of trade certificate bases the class of vehicle, not on model and variant; Rule 81 to be aligned with Rule 34 of CMV rules; across state validity for dealer issued trade certificate, as this will lead to ease of doing business to dealers. Earlier, there have been instances of local authorities harassing dealerships in their premises that hold up vehicles on a temporary basis. Online renewal and longer validity across state has solved this major pain point for our sector.
You talked about the need for an Auto Dealer’s Protection Act. Why is this needed?
In the Last five years the country has witnessed five global brands exit from the Indian market starting with GM (2017), MAN Trucks (2018), UM Lohia (2019), Harley Davidson (2020) and Ford (2021). Such exits adversely impact the interests of consumers who are often left with no avenues for after-sales services and with resale value of their vehicles nose-diving. Dealers being the first customers for the OEM are also left in the lurch with an immense capital loss. Dealers who have been the face of these companies since their existence and the link between the company and customers for years are left with ruined customer relations, and the endless barrage of consumer complaints.
The entrenched unethical and imbalanced power structures with OEMs have caused a great deal of anguish to automobile dealers as the existing laws are not adequate to protect their interests. Some of the irregularities which impact the dealer business and confidence include dealership agreement tenures which are as low as one year -- it takes anywhere between 3-5 years for a dealership business to reach breakeven; vague grounds of dealership termination giving greater flexibility to OEMs; absence of repurchase obligations for OEMs in case of dealership exit; dealers are made a party to consumer complaints; and limited flexibility in making business decisions, etc.
What steps did you take to make this a reality?
At FADA, we did a comprehensive research study on global contracts vis-à-vis Indian agreements and found that there has been an immense imbalance in Indian agreements. Globally, the countries have recognised the inherent power imbalance and hence have enacted legislation to level the playing field. FADA has made strong representation to all possible platforms (government, policymakers, OEMs, etc.) to address the concern on priority. Till date we have met around 50 Members of Parliament including Cabinet ministers and State ministers and made them aware of the value a dealership creates. FADA has also worked on a 'model dealer agreement', and has initiated discussion with OEMs to implement points from the same in their agreements with dealers.