A Guarded Optimism Binod Agarwal, President Dear friends, I have completed the second year in the office of this august body. It is time for me to take stock of the year gone by. When I started my second innings in September last year, the automotive scenario was buoyant and the mood everywhere upbeat. The fact that the Indian economy was on upswing added to the prevailing excitement and enthusiasm within the automotive sector. However, the scourge of inflation emerged all of sudden from nowhere, necessitating RBI's intervention to combat it. RBI's measures primarily aimed at sucking out excess liquidity in the market and correcting demand-supply mismatch resulted in hike in interest rates by as much as 6-7 percentage points, which in turn, put brakes on the growth momentum. The auto industry has not been able to recover from the slowdown experienced from the beginning of this financial year. However, there are encouraging signs. Economy has grown by 9.3% in the Q1 08. The manufacturing and services sector have once again come up trumps thereby sustaining the GDP on a high growth trajectory, in spite of liquidity squeeze and contrary to predictions and forecasts pointing to slowdown. The growth of agriculture at 3.8% in the first quarter is gratifying, as the performance of agriculture sector has been a sore point in an otherwise buoyant economic scenario. With monsoon this year being normal and evenly spread, we can expect the agriculture production to stay on course during the year, helping thereby stability on the inflation front and softening of interest rates in the near future.. However, analysts feel the impact of rise in interest rates may be felt from the second quarter onwards. Apprehensions of slowdown notwithstanding, I for one do not see the economy losing momentum, it may not attain the growth rate of the previous year, though. Riding on the strong macroeconomic fundamentals and the ensuing festival season, the domestic demand should naturally pick up in the second half of the current financial year. There is no gainsaying that the interest rate hike coupled with the slowdown has put further pressure on the already tenuous viability of automobile dealerships. The credit squeeze is acting as a double whammy for the automobile dealerships. While rise in lending rates has made the customers defer their purchases resulting in demand sluggishness on one hand, it has increased the inventory turnaround time & costs for dealerships, on the other. Shrinking margins, shortage of trained manpower and complexities of various laws at the locar, state and central levels relating to registration of vehicles, taxes on motor vehicles, land use restrictions in major cities, environment protection, safety and inflexible industrial & labour laws are compounding the problems for automobile dealerships. FADA, as an apex organisation of automobile dealers, is alive to the major concerns of automobile dealer fraternity. We, in FADA, initiated a number of in-house measures to help automobile dealerships tide over some of these problems. I would like to recount here some of the major initiatives taken by FADA for the benefit of automobile dealer fraternity. Helpline service started by FADA with a view to clarifying members' queries on various issues, including the technical and procedural issues connected with registration of vehicles, taxes on motor vehicles, environment protection laws and a number of other laws applicable to automobile dealerships, has been a resounding success as reflected in the large number of queries received by the President, the Director-Helpline and FADA Secretariat. We, in FADA, tried our best to reply promptly to the queries received from members, providing information on the legal position and the prevailing practices with regard to various matters connected with the dealership operations. Automobile dealers across the country are facing an acute shortage of trained manpower. Attrition rate in the automotive retail trade and service industry is assuming an alarming proportion as a result of the growth of automotive industry and due to the lure of higher compensation package offered by other fellow dealers. Retail, insurance and banking sectors are also wooing the manpower working in dealerships with attractive salaries. To address this problem in our own humble way, we set rolling the training courses in association with reputed institutes to train Service Supervisors, Spare Parts Supervisors and Sales Executives for catering to the manpower needs of automobile dealerships. The programme initiated at Pune as a pilot was taken forward in right earnest. Two more cities, namely, Kolkata and Kolhapur were covered within the programme during the year. Although the response has not been encouraging, we are open to extending the programme to other cities, if the local members come forward to associate with it. Intense competition in the market place and a combination of other factors are putting a tremendous pressure on dealer viability. A comparative study of the business model of select car dealerships at Kolkata was carried out and its findings were revealing. Based on the initial findings of this study revealing poor state of profitability of dealerships, FADA constituted a committee with Mr N K Batra as its Convenor to study the business model of dealerships of different automobile companies. We propose to present the findings of this study at an appropriate forum to highlight the poor financial health of automobile dealerships in India vis-à-vis dealerships abroad. There are host of other issues, such as service tax, FBT, VAT, procedures for registration of vehicles, variation in taxes on motor vehicles across states, absence of provision for automobile dealerships in land use planning of major cities and inspection & certification of vehicles, which were taken up by FADA either through representation or during discussion at various forums. It gives me a sense of satisfaction that our suggestions were well received by the authorities in the Central and State governments. While we have done our bit in addressing the problems and issues affecting retail automobile trade, I do realise that a lot more needs to be done. Needless to mention, the auto retail and service industry - having invested Rs. 22,000 crores, employing directly 4 lakh people and contributing significantly to the Central and State exchequers, is an important link in the value chain in the automotive business and a major segment of the organised retail sector. Spin-off of auto retail activity on finance, banking and insurance sectors needs no overemphasis. We have to continue our efforts in securing a rightful place for auto retail as an important segment of Indian economy. I have no doubt that the new Council that will be constituted on 21st September 2007 at the next AGM and its office bearers will take up the unfinished agenda with all seriousness and drive the auto retail and service industry to new heights. I express my sincere thanks and gratitude to my colleagues in the Council and Past Presidents as well as other senior members for their unstinted support to me during my tenure as President of this august body. I am indebted to Past Presidents, namely, Mr Bharat Sanghvi, Mr Rakesh Jain, Mr Vinay Nevatia, Mr Kailash Gupta, Mr Ajit Chordia, Mr Deshnidhi Kasliwal, Mr Jayendra Kachalia, Mr K P Jhunjhunwala, Mr Ravi Poddar, Mr Arun Sanghi and Mr Ramesh Suri, in particular, who came up with their wise counsel and guidance from time to time to keep us on the right track. My special thanks to Vice President - Mr Pradip R Kamdar, who stood by me through thick and thin. I am grateful to the office bearers and the secretariat of SIAM and also to the manufacturers individually for their support to various activities and appreciation of concerns of FADA and its membership. I also express my sincere thanks to other industry associations, specifically, FICCI, ASSOCHAM, CII and ACMAforw2rking closely with FADA to take our agenda forward. My profound thanks are due to the authorities in the Central & State Governments, who were very positive to various suggestions put forth by FADA. I acknowledge with gratitude the support extended by allied sectors, such as, banks, finance companies and insurance companies. They came forward to sponsor FAD A's activities in a big way and worked in partnership with automobile dealer fraternity for promoting the growth of automotive business as a whole. Lastly but not the least, I acknowledge and place on record my appreciation of the valuable support extended by FADA Secretariat, ably led by Mr Gulshan Ahuja, in discharge of my responsibilities. I wish the new Council and the incoming President all the best. With best wishes, Yours sincerely, Binod Agarwal