Auto Retail: An Essential Link in Auto Business and a Significant Stakeholder

"Auto Retail in organised sector comprising an extensive network of 6,500 automobile dealerships and their workshops with a combined investment of Rs. 22,000 crores and employing 4 lakh people directly is an essential link in automotive business and an important stakeholder in the growth of automotive industry and national economy." This was a unanimous view that emerged at the Conference on "Auto Retail: Framework for Growth" organised jointly by FADA and FICCI on 19th September 2006 at New Delhi. The Auto Retail, therefore, must be accorded its due recognition and rightful place as a significant player in automotive business and retail sector. The Conference also brought home a message that while the current and emerging automotive scenario was buoyant, the industry and especially the retail automobile trade would have to gear to overcome new challenges and roadblocks likely to be encountered on the way to growth.

Addressing the delegates at the Inaugural Session, Chief Guest - T R Baalu, Hon'ble Union Minister of Shipping, Road Transport & Highways, said that the government had formulated Auto Policy with a vision to establish a globally competitive automobile industry in India, which would have to contribute substantially to achieve a consistent GDP growth of over 8% if real India was to shine. He assured that the Government, having committed a massive investment of Rs. 2,20,000 crores over the next 7 years was sparing no effort to accelerate the pace of world class road development programme in the country, which would give a further thrust to auto industry growth.

In 2004, an estimated 92,000 people were killed in over 400,000 road accidents in the country which, he said, leads to a loss of about 2-3% of India's GDP. Observing that the number of motor vehicles had increased at a great pace and was set to touch 70 million by March 2007, the Minister urged the industry to install modern features like GPS in the vehicles which would make it easier to track vehicles in case of road accidents. He advised industry to provide maximum safety features, such as, air bags, anti-collision devices, fatigue alarms and anti-lock braking system (ASS) in vehicles to ensure safety of drivers and other road users: Complimenting auto industry for keeping pace with global standards, he expressed his concern over advertisements glamourising over-speeding and urged industry and trade to spread road safety awareness.

Responding to the observations earlier made by Binod Agarwal, President, FADA and Onkar S Kanwar, Immediate Past President, FICCI on cumbersome registration procedure at RTOs, the Minister said that his ministry had taken the initiative to provide software for computerization of all RTOs in the country. To facilitate uniformity of records and hassle free transfer of vehicles, state governments had to not only computerise the motor vehicle registration data but also put all their records on computers. He, however, lamented that the progress in this regard was not very encouraging. Regarding variation in road tax across States, he revealed that the issue had been discussed at various forums but no headway could be made. He, however, assured that the concerns of retail automobile trade regarding vehicle registration procedure and other issues falling within the domain of his ministry would be carefully examined.

Dr Arindam Bhattacharya, Vice President & Director, The Boston Consulting Group (India), in his presentation on the emerging auto retail scenario painted a promising future but, at the same time, identified the following major challenges in medium and long term:

▪	Challenge of demographics: Indian buyers are young people with an average age of 30, who have different needs and buying behaviour than the older buyers in Europe and the US.
▪	Challenge of low-income level: In spite of its enormous growth, India will remain relatively a poor country with low average income levels. Small cars would continue to be the mainstay of Indian automobile market. Auto retail would have to contend with low margins and would have to tailor their retail business models and formats to this reality.
▪	Challenge of rapid urbanisation: With rapid urbanisation, availability and cost of land is likely to remain a huge challenge for auto retail. Land cost already constitutes 60-70% of the cost of setting up a dealership in India.
▪	Challenge of Customer loyalty: As the market matures, more and more models would be launched, thereby giving a wide choice to the customers. Auto retail will need to rethink and rework its strategies to ensure and maintain the loyalty of its customers.
▪	Challenge of new competitors: Some of the OEMs are setting up their own parts and service outlets and other organised players like Reliance have plans of setting up independent garages. Appropriate strategies would have to be developed to counter this challenge.

 
Earlier welcoming the guests and participants, Onkar S Kanwar, Immediate Past President, FICCI and Chairman, Apollo Tyres highlighted the importance of auto retail in the national economy with its significant contribution in the form of capital investment, employment generation and revenues to the State exchequers. He also touched upon the challenges and concerns with regard to road infrastructure & parking facilities within cities and urban centres, hasslesome vehicle registration procedures, variation in road tax and incidence of other taxes at local and State levels, land use & planning within major cities, traffic management, environment pollution and road safety. Auto retail is the most labour-intensive part of the auto industry and proper nurturing of the sector would result in millions of new jobs and prosperity of the country, he added. Vinay Nevatia, Chairman, Auto Retail Task Force, RCCI and Past President, FADA observed that while the Government had recognized the auto industry as an engine of growth and come up with Auto Mission Plan (AMP) 2016 to make India a global manufacturing hub, the role and concerns of auto retail, an essential link and an important player in value chain, did not find mention in the AMP.

The Interactive Session chaired by Vinay Nevatia on the topic 'Regulatory Framework for Auto Retail' comprised of eminent panelists, namely: Sumantra Chowdhury, Principal Secretary (Transport), Govt of West Bengal; N Balachandran, Special Commissioner (Transport Deptt), Govt of Delhi; Ajay Misra, Transport Commissioner, Govt of Andhra Pradesh; Iqbal Singh, Transport Commissioner, Govt of Punjab; Upendra Jain, Deputy Transport Commissioner, Govt of Madhya Pradesh; Eswaranatrajan, Head Motor Vehicle Underwriting and Claims, ICICI Lombard; and Ravi Bhatia, General Manager (Sales Support), Maruti Udyog Ltd.

Lively discussion on various issues pertaining to Motor Vehicles Act and the rules made thereunder resulted in the following outcome:

Approval of New Models by the Transport Departments of State Governments

Requirement of approval of new models by respective State Governments, particularly when the new models are tested and certified by the national testing agencies, like, ARAI and VRDE, does not serve much purpose. Mere information about the new models to various RTOs within the respective States should suffice.

Re-registration of pre-owned vehicles

As the organised used vehicle business matures and grows, the dealers would have to hold the vehicles on re-sale for a longer period of time. There is a need to amend the Motor Vehicles Act/CMVR to make a provision for the holding agency in registration certificate and for rights and responsibilities of holding agency during the period it holds the vehicle.

Authorising Automobile Dealers to register New Non-Transport Vehicles

While the proposal is good and should be adopted for the reason that it simplifies the procedure and avoids delay, it requires an in-depth study from the perspectives of issuance of Registration Certificates in the form of Smart Cards and impending introduction of High Security Registration Plates, delegation of which may not be feasible.

Variation in Road Tax across States

The issue has been discussed from time to time with no positive result. Road tax being State subject, it may be difficult to bring about uniformity. Retail automobile trade and FICCI would have to pursue with respective State Governments.

Scrapping Policy

As the vehicle population increases, condemned vehicles are going to pose a serious challenge in terms of space and environment.

There is an urgent need to formulate a scrapping policy and norms.

Standardisation of Driver Training Schools and Accrediting Automobile Dealers as Inspection Agency for In-Use Vehicles

The suggestions were well-received.

Speaking on the HR challenge for auto retail, K Srinivas, Vice President (HR), Bajaj Auto Ltd said that HR should not be looked upon as a softer aspect but as a hardcore business aspect. Companies and, for that matter, automobile dealerships, would have to come up with appropriate strategies including rationalization of workforce, redefining and re-Iocating the jobs and automation, by isolating and identifying various aspects of HR problem. A company or a dealership should look upon HR challenge as a symptom for change in the business model, if necessary.

Dr Harivansh Chaturvedi, Director, BIMTECH, in his presentation showed that the auto sector would grow to USD 145bn by 2016. With this kind of growth and technological advancements, he said, the manpower requirement would multiply for different areas of dealership and workshop operations. He cited lack of training efforts by the dealerships, low awareness of career opportunities & growth and lack of HR focus at dealerships.

The interactive session on taxation, chaired by Sushi I Solanki, Commissioner, Central Board of Excise and Customs saw a variety of issues, including service tax; VAT and abolition of CST, Octroi & other levies; depreciation rate for cars; and excise duty on cars, being flagged from the floor. Replying to queries relating to service tax, among other issues, Solanki clarified that: (i) Sale margin or dealer's mark-up on spare parts sold during service or repair does not attract service tax; (ii) Service Tax law provides for levy of service tax on gross value and, as such, service tax is chargeable on the gross amount received by automobile dealers from banks for arranging vehicle finance on behalf of their customers; (iii) No service tax is leviable on repair or service of commercial vehicles; and (iv) The point that service tax on finance commission should apply from 10lh September 2004 and not from 151 July 2003 is under consideration of the Ministry of Finance.

Rakesh Jain, Past President, FADA in his opening remarks at the Session on Infrastructure - Land Use and Urban Planning, pointed out that automobile dealers in Delhi in particular found themselves in a cleft stick. He said that automobile dealerships, especially those having sales, service and spares under one roof as a composite activity, could neither operate from commercial areas nor from industrial areas. The provision should be made for (i) automobile dealerships with 3-S facility to operate from industrial areas; (ii) godowns/stockyards on the periphery of cities for stocking vehicles; and (iii) auto zones and auto clusters in various parts of Delhi and other cities, he suggested.

V Vaidyanathan, Head - Retail Group, ICICI Bank in his presentation on road infrastructure pointed out that in India, only 20% of the roads were serviceable as against 85% in the US. The improvement in serviceable roads would lead to all-round efficiency and bring down the logistics cost from present high level of 17%.

A K Jain, Commissioner (Planning), DDA said that the Delhi Master Plan 2021 while laying emphasis on traffic and transportation, envisages 6-hectare of land per 5 lakh of population and 2-hectare per 2 lakh population for automobile repair facilities. Some of the areas identified for the purpose are: Gazipur in East, Narela in North, Madanpur Khadar in South and Dwarka in West, he added.