Sharp Decline in Automobile Sales Puts Dealers in a State of Despair

There has been a decline in the sales of automobiles in India recently. As a result, a number of showrooms and service centres have shut down across the country. Many dealers have gone bankrupt and have defaulted on their bank loans. Two-wheelers, four-wheelers, and commercial vehicles are facing the same challenge lately.

So far, about 300 dealerships have shut down their business since the banking crisis began in the mid of 2018.

Consequently, the number of loans approved reduced; in turn, the sales of vehicles have also reduced. Thousands of blue-collar workers have lost their jobs, the return-on-investment has dropped, and the banks have deviated their credit focus towards real estate and other sectors. These can be deemed as the key reasons for business failures

Meanwhile, the banks have reduced credit to dealers as an effort to have clean books of accounts and reduce bad loans. Declining sales together with bank credit have created huge pressure on the dealers’ finances. It is speculated that the dip in the financial health of these dealers is most likely to continue the same way for the rest of the financial year.

Also Read: Auto sector appeals for a lower GST and a higher depreciation rate

One of the dealers from Maharashtra has shared with LiveMint that there are one or the other headwinds in the business since the time of demonetisation. After the IL&FS crisis, sales have further fallen. He has also mentioned that he had to let go about 200 employees during the course of time.

It is speculated that automobile sales may remain in the current state until the second quarter of the next financial year. There are hopes for a rise in sales as Bharat Stage VI norms is scheduled for implementation from April 2020. The norms are said to ensure cleaner vehicles at higher prices.

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