Starting the New Year with a Renewed Hope S P Shah, President Dear friends, The Government of India came up with the second Stimulus Package as a new-year gift for the India Inc with a view to reviving the sagging growth of Indian economy, which has severely impacted the auto market. We, in FADA, welcome the measures announced in the second stimulus package, which are expected to shore up, to some degree, the business confidence that has been low for some time now. 50% depreciation on commercial vehicles purchased during January to March 2009 will help spur CV sales that are reeling under acute slowdown, in the short term. Provision of Rs. 4,000 crores, under JNNURM for purchase of buses by STUs is another welcome step that will unlock a block order to help boost CV sales. The renewal and modernisation of STU fleet and improvement of public transport system is long overdue. I am happy that the urban transport has been brought within the ambit of JNNRUM. Similarly, public banks offering a special line of credit to NBFCs for bus and truck financing should ease credit crunch and make it easier to buy a new vehicle. Together with excise duty incentives announced earlier and cuts in CRR, Repo & reverse Repo rates, hopefully, the automotive sales and CV sales in particular will help gather steam. These measures were desperately needed particularly when plant shutdowns and dealership closures, thanks to slowing demand, are becoming the order of the day. Well-meaning intention of the Government notwithstanding, the measures will have the lasting effect only if the package is able to revive the economic activity and confidence. There is a lot of uncertainty in the job market and the Satyam episode has dented the confidence further. After all, the sharp fall in vehicle sales is as much due to a credit crunch and high interest rates as due to the lack of confidence and business activity. The recent data on industrial production released by the Government pitches the industrial growth in November at 2.4%. While it is comforting to see the industrial growth bouncing back, any relief on account of rebound in industrial growth in November as against a 0.3% contraction in October has to be tempered by a slump in core sector growth to 2.2%. The 2.3% contraction in the production of capital goods, a lead indicator of investment activity, in November against a 9.2% growth over April-October 2008 is another reminder that there could be more pain ahead. Given these conflicting signals that appear to be weighed more towards the negative side, the rebound in industrial production could well prove to be a temporary respite. Even if the successive interest rate cuts and the various other measures that have been taken by the Reserve Bank of India and the Government are good enough to reverse the slowdown, the effects are unlikely to be visible until later in the year. Secondly, while the Government and the RBI have been doing their bit to ease credit availability and help soften interest rates, it is not visible at the ground level. The banks and especially the private banks are still reluctant to lend and there is no significant reduction in lending rates. In our interaction with banks of late, we were assured, though, that the interest rates would come down shortly. I am happy to note that some of the banks have set the ball rolling in this direction by reducing their interest rates on auto loans. Thirdly, while the provision of Rs. 4,000 under JNNRUM for urban transport is definitely a positive feature of the package and will go a long way in renewing and modernising the urban transport that is in a miserable state today, there has to be a cap on the age of commercial vehicles in the interest of environment and road safety, which will ensure simultaneously a sustained growth of CV segment without recourse to special measurers from time to time. Adverting to the activities of FADA, we have been able to maintain and, in fact, step up our interaction with the manufacturers and the banks that are key to reviving auto retail. The undersigned and other members of FADA at Mumbai called on HDFC Bank officials at the latter's office to discuss credit availability and interest rates. These issues were also taken up and discussed at FADA's Open House Session, coinciding with FADA Council meeting, on 10th January at Mumbai at which the senior officials of ICICI Bank and HDFC Bank made presentation and interacted with the participants on various issues relating to dealership funding and auto finance. It transpired that the Supreme Court order on repossession of vehicles has made banks more cautious and selective in vehicle loan approvals. While the banks are willing to finance vehicle purchases, action of some of the State Governments is making recovery difficult from the defaulting borrowers. They asked FADA members in various parts of the country to take up with their respective State Governments to ensure that their policies are supportive of financiers in case of default. As for dealership funding, with Base II norms coming in, the automobile dealers have to strengthen their balance-sheets and get their credit worthiness rated by the external rating agencies to avail higher credit limits and competitive interest rates. The interaction was very useful and educating. We also had a meeting with Mr Ravi Kant, President, SIAM and MD, Tata Motors wherein various issues of mutual concern were discussed. I am happy to inform that Mr Ravi Kant was quite positive to the suggestions put forth by FADA, including the need to avoid inventory build-up at the dealerships. He sought some data and details for further discussion, which we are working on. We are also proposing to meet other manufacturers individually to share the concerns of automobile dealers. It is essential for automobile dealers to share their experiences and exchange data as far as possible so that various issues of concern to auto retail are understood in their proper perspective and can be presented in a cogent manner. FADA had formed earlier a Group 20 wherein participating members shared their experiences and data to identify the problems and best practices. At the Council Meeting held on 10th January 2009 at Mumbai, members were unanimously of the opinion that the Group 20 should be revived. The concept of Group 20 is borrowed from our sister organisation, NADA in the US. The Group 20 comprises of 20 non-competing automobile dealers representing various franchises from across the country. Group 20 members meet periodically to share their experiences and data that are collated for the larger interest of automobile dealer fraternity in general. Participating members, in particular, gain a lot from such exchange of ideas and data. The Group 20 programme is very popular in the US, where members have to pay huge fees to get entry into the group. Unfortunately, the initiative taken by FADA in the past did not make much headway and had to be discontinued largely due to lack of interest on the part of members. Hope, the G20 programme being revived now will witness active participation and sustained interest from FADA members. Members interested in participating in Group 20 may get in touch with me. I am glad to inform that FADA is taking a delegation of 14-15 members to participate at the NADA Convention and Equipment Exposition scheduled for 24th to 27th January 2009 at New Orleans. Vice President, FADA and myself are also slated to make presentation at the Convention. FADA has built strong relations with NADA over the years. This visit will deepen further the close relations between the two organisations. I shall be sharing my experiences and outcome of the NADA Convention in the next issue. With best wishes, Yours sincerely, S P Shah