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Maruti Suzuki may hike dealer margins
The senior management of the company, in a meeting last week, has urged dealers to start repaying their loans and not wait for the tenure to end.
Maruti Suzuki India Ltd is considering a series of steps to improve the financials of its struggling dealers, including boosting their profit margins and ensuring that they have access to bank credit, two people aware of the developments said.
The country’s largest carmaker is likely to increase the dealer margin on cars after the festive season to help dealers at a time when sales are likely to be subdued. The senior management of the company, in a meeting last week, has urged dealers to start repaying their loans and not wait for the tenure to end.
This step, the Maruti management hopes, will improve the creditworthiness of its dealers and encourage banks to ease the stringent lending norms.
The New Delhi-based company is also planning to monitor the financial performances of all dealers through the uncertain times, the people cited above said.
Auto dealers have been facing intense scrutiny from lenders because of their poor financials amid the coronavirus pandemic. In fact, the industry was already facing a slowdown in demand before the pandemic struck. Government rules mandating tougher emissions standards had forced carmakers to hike prices, driving away customers even as the availability of loans to buyers had dried up because of a crisis that engulfed non-bank lenders.
With subdued sales, the financials of dealers deteriorated. Fearing loans will turn sour, banks imposed stringent conditions, depriving thousands of car dealers the short-term credit they need to buy vehicles from the manufacturers. With as many as 2,500 dealers across India, Maruti has been hit as many of its dealers failed to get loans for buying vehicles from the company.
More than 300 dealerships across automakers in the country have shut shop, and some are in the process of winding up as covid-19 related economic downturn has further crippled their finances.
While Maruti had the least number of bankrupt dealers over the past two years, the few that had to shut down cost the banks substantially, said one of the two people cited above.
“The company is looking to increase margins on some products since sales have not been great, and dealers have to be incentivized to make the business proposition sustainable. A healthy dealer channel is imperative for the effective functioning of an auto company. Without help from banks that’s not possible,” the person said.
Automobile dealers across companies have been clamouring for an increase in margins after the covid-19 pandemic sent sales plunging to an all-time low.
Overall, vehicle manufacturers have witnessed a decline in sales from the second half of FY19. Sales of vehicles fell in the range of 15-25% across categories in the year ended 31 March 2020 after reporting low-single-digit growth in the previous year. According to rating company ICRA Ltd, sales of passenger vehicles are likely to drop in the range of 22-25% in the current fiscal.
“With dealers paying the banks on a real-time basis, banks will be able to monitor the inventory situation of the dealers and offer terms accordingly. Establishing the credibility of the dealers is important for a carmaker of Maruti’s size,” said the second person, requesting anonymity.
According to Shashank Srivastava, executive director, marketing and sales at Maruti Suzuki, the company keeps studying the business requirements and the cost structure of the dealers to improve their financial performance.
“Our endeavour is to implement information system and strengthen processes, which benefit both our dealers and our finance partners. This gives the necessary confidence to both the borrowers and the lenders. We have always urged all the stakeholders to practice prudent financial processes for their long-term financial health. This includes making timely repayments,” Srivastava said in response to an emailed query on Monday.
