CV dealers are a worried lot with business witnessing a significant dip.
Story by Deven Lad
There are an estimated 1000 plus CV dealers in India. These are franchises of six or seven CV majors. Chances are that there are more CV dealers if those catering to regional and local brands were to be taken into account. Even those that cater to the rising count of e-rickshaws among others. Most are in varying degrees of distress are facing the economic slowdown of 2019 and the Covid-19 situation of 2020. Their reason for distress may vary, but distressed they are for certain. A chat with Piyush Jain, a Mumbai-based SML-Isuzu dealer, revealed that he is badly affected. Eagerly waiting for the school season to start as a big chunk of his CV sales comes from school buses, Jain is very worried. “We have had no sales for the last four months,” he expressed as a matter of fact. Informing that the pandemic unleashed itself exactly when the school season begins, Jain averred that if such conditions persist for a few more months, it would be extremely difficult to stay in business.
The bus operators, it is no secret, have been the worst affected when compared to the truck operators. Most suffered from having their buses rendered inoperative during the two months of what is described as the world’s most brutal lockdown. The ‘unlockdown’ that was announced by the government on July 01, 2020, has not led to a cheerful situation with the number of Covid-19 positive cases spiking. Having crossed the 31 lakh mark with 60,975 new cases, India has come to rank a close third after Brazil and US. For bus operators and truck operators, it in no way spells good news as they grapple with lack of any relief from the government and witness little freight or people-travel demand. With no CV operator in a position to even think of purchasing a new CV, except the very big players and those who have vehicles that are absolutely at the end of their life, CV dealers are clearly under much distress.
As CV makers make efforts to resume production (see box) and restore their supply chain, it is the CV dealers that will take more efforts to get right, it seems. This is especially proving to be a challenge for full-range CV makers. “Our operational costs, which include interest payments, staff salaries among others are turning out to be unsustainable. The 30 per cent revenue from service is just about helping to stay afloat,” said Jain. “The loss we continue to incur every passing day is spiralling such that we will have to decide if we should shut down the business very soon,” he added.
Priorities
Prioritising to retain their skilled manpower, dealers are finding the going tough. Expressed A. Rajan, General Manager (Sales & Service) at Anamallais Agencies (Stadium), said that they are experiencing hardly any demand in bus and truck segments. Staring at the first half of the current fiscal as a complete washout, Rajan is not certain if the upcoming festive season will bring any cheer. The malaise he fears has run deep and will take a long time to eradicate. Stressing on the fact that the pandemic has thrown the business of many of their customers out of gear, Rajan remarked that there is an acute cash crunch. Receiving a lot of inquiries about BSVI vehicles and if they would support higher profitability in the wake of the challenges many CV operators had come to face post the announcement of new axle norms by the government in late 2018 and the subsequent economic slowdown in 2019, CV dealers have been left high and dry. Said Bharat K. Patel, Partner, Trishul Motors (a VECV dealer), that the pandemic has drastically altered their business equation.
Of the opinion that the lockdown has ended their story, Patel expressed that they are facing a terrible liquidity crunch. In fact, many dealers that CV magazine spoke to, on the condition of not revealing their identity, mentioned that they have received help from no quarter. Neither from their dealer principal, not from the government, which gathers so many taxes from them under one pretext or the other. Stating that it would be almost impossible to get back on their feet in the current financial year, Patel averred that the rot has run deeper than many experts have come to gauge. Operating four service centres and two showrooms with an employee strength of 250, Patel is prioritising the retention of manpower as well.
If the Supreme Court’s judgement to allow registration of BSIV vehicles sold till March 25, 2020, has helped, on the condition of anonymity, many dealers said that it is the case of being too late and too little relief. One dealer was specific. He expressed that they have been subject to much trouble, being stuck between their customers and the court. In case of CVs, it is a different equation, he stated. Cowls and bus chassis take time for bodies to be built. They are registered post that, he informed. Another dealer pointed at the significant slowdown at the RTO level due to less staff. Factors like these also affected our ability to clear BSIV vehicles despite entering into a sale agreement with customers, he quipped. What also affected the ability of the dealers to clear their stock of BSIV CVs was the shortage of drivers.
Driver shortage and finance woes
The issue of driver shortage has also affected CV sales, mentioned a dealer. Already finding it difficult to achieve good utilisation levels, transporters have simply postponed any plan they had been working on to replace their aging vehicles with new ones, he added. Another dealer, on the condition of not revealing his identity, mentioned that they have been waiting for drivers to return. In their absence, many CVs have not been able to visit their service centre for periodic servicing, he said. Difficulty to secure finance, said yet another dealer, has been a big stumbling block in their efforts to drive their business. While many drivers have gone to their native villages, taking the vehicles along with them, dealers are getting robbed of their secured business of servicing these vehicles as per their schedule. The sudden move by many banks and financial institutions to not give loans on one pretext or the other has also led to a significant shrinking of CV sales, new and used, said one dealer.
Many first-time businessmen or driver-turned-owners who want to venture into the transport business are not getting finance from banks, said a Hubli-based CV dealer on the condition of not revealing his name. Announced Patel, “Lot of our customers are first-timers, and the finance companies, it looks like, are not interested in giving them a loan.” “Not only is this stalling our business, it is also leading to an uncertainty of the most cruel kind,” he added. Opining that most CV dealers have gone bankrupt, an industry observer said that the liquidity crunch is so severe that he fears that a huge amount of them would have disappeared by the end of this calendar year if something is not done to support them by their principals and the government. The observer also mentioned the possibility of big dealers acquiring the smaller, vulnerable ones. Here’s another scenario of big fish eating the small fish that is very likely to be seen, he quipped.
New wave of mergers and acquisitions
The high speed journey towards bankruptcy of many CV dealers is expected to unleash a new wave of mergers and acquisitions, mentioned another industry observer. The process has already started, he added. Stating that some dealers are either shutting down or merging with larger dealerships, he informed that the need for liquidity is fierce. The worst, he remarked, is the absence of customers. Dealerships, for all the showroom experience demanded by their principals some years ago, have turned into ghost towns, he remarked. Even though the government has announced Covid relief for Micro, Small and Medium Enterprises (MSMEs), dealers do not seem to be very keen to take advantage. Despite the offer including collateral-free loans totalling Rupees-three lakh crore, dealers seem unenthusiastic as they do not want additional liabilities, said an analyst that follows the CV industry beat. Dealers he spoke to, he informed, told him that they are already reeling under a huge debt and don’t want some more of it.
On the condition of anonymity, a CV dealer mentioned that the stimulus package is of no help to them. It is a good initiative, but not helpful as there seems to be a lack of understanding, he added. We are stuck at the sales end, and the stimulus package is not going to get us customers, he expressed further. With the stimulus package announced by the government looks like a set of misplaced priorities at least when it comes to address the woes of the dealers, the biggest challenge faced is to get footfalls. They are nowhere near the normal of 2019. Asked if a relief package was extended to truck and bus operators, a few dealers doubted if that would kick-start demand for new vehicles. Such is the state of small transporters that amount to about 60 to 70 per cent of the total transporter size in India, that they would prefer to repay their debts first, mentioned a dealer at Nagpur.
The road ahead
Of the opinion that it would take at least one full year to recover, a CV dealer expressed that the positive development at this moment in time is the rising involvement of major CV principals in hand holding them. Announced Raghav Sanghi of Sanghi (MTB) Trucking Pvt. Ltd., Indore, that businesses are reopening and it is a matter of time when normalcy will restore itself. Stating that there is no need for dealers to lose hope, Sanghi said, “Customers are coming and inquiring about vehicles. There is enough reason to believe that sales will soon start taking place.” This is a passing phase and will soon be over, he added. Averred Sanjay Passi of Pasco Motors that the current dull phase will soon pass. GP Randhawa of Randhawa Motors, Panvel, said that they have taken to strategic planning to get over the current phase of low to no sales.
Stressing on the importance of strategic planning, Randhawa said, “We as well as other dealers are facing many difficulties. We are however staying positive and are confident that the current dull phase will soon pass away.” Revealing that online inquiries have risen in number, Randhawa drew attention to the change in customer psyche. Customers are finding a way to digitise themselves and use the internet to do tasks that they did not even think of doing sometime back. Both Passi and Randhawa mentioned that their principals Tata Motors and Mahindra & Mahindra have been supporting them through this challenging period. Informing that they have managed to get sales going through even though the scale is anything to talk home about, a CV dealer echoed the sentiments of Passi and Randhawa that this dull phase will pass soon.
Stating that the leadership at CV dealers across the country, irrespective of them selling trucks, buses, vans, mini-trucks or e-rickshaws, was tested for the last few months, an industry analyst mentioned that some have been highly innovative in their approach towards business. Many dealers, overcoming their competitive spirits, have taken to collaborate with other industry stakeholders to overcome the challenges. Many dealers have gone out of their way to support their clients, have helped them secure finance, and provide them service at their doorstep, he said. Expressed Randhawa, the current times will make us emerge stronger. The current times have shown us new ways to drive revenue, he added. Deriving more revenue from service than sales, Randhawa Motors has survived the severely challenging last few months to tell the tale. The rough period is not entirely behind us yet, said Randhawa, but we are hopeful of emerging stronger, he reiterated. He took much pride in relaying that when the lockdown started, they sat down and planned their way ahead. This, he informed, helped them to sort out challenges like staff salaries among others.
Supporting the staff to follow the stipulated guidelines and social distancing procedures, Randhawa Motors is confident that business will reach normal levels sooner than later. Many CV dealers are hopeful that the festival season will provide them some reason to cheer. Said Tejpal Ailsinghani, Managing Director, Kamal Motors, that he is positive of the situation improving. “We are hopeful of the situation getting better during the upcoming festive season,” he quipped. Increasing their online presence, many CV dealers across the country have taken to training their sales and service to help them get grip over the situation. Many have taken to re-orienting their staff into realising opportunities in ways that they would not have probably thought of earlier. Arranging demo vehicles at the doorstep of customers, dealers have taken to using tabs and similar such instruments in a big way.
Witnessing inquiries grow in LCV, ICV and M&HCV segments, CV dealers are hoping that other segments too start showing some traction. Conversion is however proving to be a contentious issue. Mentioned a CV dealer from Pune that they are seeing better traction in used CVs as compared to the sale of new CVs. Daimler India Commercial Vehicles (DICV) recently announced that they are entering the used CV space to further increase their reach and help their dealers avail of additional revenue building opportunities. Rajaram Krishnamurthy, Vice President Marketing & Sales and Customer Services, DICV, expressed during the announcement that the used trucks market in India is three times that of the new trucks market. With CV majors like DICV taking to used CVs (it will soon add buses to its used business), it is not surprising that many CV dealers have found better revenue realisation opportunities in the used vehicle space by offering a one-stop shop experience. Dealers have been helping used CV buyers with refurbishment services, with documentation and with availing of finance.
The pandemic has given a new lease of life to the used CV business, mentioned an industry observer. He stated that it also provided many CV dealers a means to stay in business. Mentioned Rajendra Kane of Trucks Trade, Navi Mumbai, that a significant shift has taken place in the used CV domain. “Used CV business has shown much growth in the last few months,” he said. Informing that inquiries have increased, Kane averred that he is hopeful of the used CV market reaching new heights in the wake of the developments like a considerable hike in the price of BSVI CVs. Of the opinion that the total operating costs of a CV have taken a new meaning in the last few months, Kane explained that certain segments are showing signs of getting better over others.
Declining CV sales
Production facilities have resumed after unlocking announced by the government but the vehicle sales have not increased even after a month which is affecting the dealer’s business. According to Society of Indian Automobile Manufacturers (SIAM), 28939 Commercial Vehicles were produced during the first quarter of FY2020-21 recording a decline of (-)87.61 per cent as compared to the production of 2,33,563 vehicles in the first quarter of FY2019-20. Only 31,636 Commercial Vehicles (CVs) were sold In Q1 FY2020-21and witnessed down (-) 84.81 per cent as compared to the sale of 208,310 CVs in Q1 FY2019-20. According to reports by CRISIL, CV manufacturers would suffer a net loss of Rs 6,000 crore and 20 per cent decline in sales volume.
