Recession, Recovery and Road Ahead S P Shah, President Dear friends, At the outset, I express my profound thanks and gratitude to Council, Past Presidents and members for reposing their faith in me by re-electing me as President of this august body for a second term. The year gone by was challenging as well as fulfilling. Auto industry across the world plunged into an acute recessionary mode arising out of the financial meltdown and consequent economic downturn. India also witnessed a severe downturn and the scenario looked bleak during the period July to November 2008. However, Indian auto industry was somewhat lucky to survive the crisis, thanks to the fiscal stimuli injected by the Government and the payouts to the Government employees due to significant hike in their salaries consequent upon implementation of Sixth Pay Commission recommendations. PSU employees also got the pay increase that encouraged spending in an otherwise none-too-rosy scenario marked by a crisis of confidence and low consumer sentiment. I must compliment the Government and, especially the public sector banks who came in a big way to lend for working capital and vehicle purchases, when the private banks and financiers, barring few, became cautious and reduced their exposure in auto space due to the global financial meltdown and internal turmoil. I also compliment the auto industry for prompt action taken by it in sensitising the Government on the need and urgency of fiscal measures to tide over the slowdown, which led the Government to come up with stimulus packages. It is heartening to note that things have been improving for the last 8 months or so. While commercial vehicles still continue to reel under slowdown, the rate of de-growth has been coming down. With industrial production and construction activity picking up as buttressed by the data released by CSO for the months of June & July 2009, I am hopeful that commercial vehicles will drive back to the fast lane very soon. Having passed through a difficult phase and survived the recessionary trends across the globe, we cannot afford to lower our guard. The great learning for auto industry and automobile dealers from the recession will come in handy and stand the industry and trade in good stead in the times to come. Mr Anil Dua, Sr Vice President, Hero Honda said aptly at FADA's 45th Annual Session, "Don't lose in growth... What you gained in recession." For Indian auto industry to sustain growth, it is also imperative for the Government not to withdraw sops, which were announced as a part of the financial packages, and increase excise duty once the auto market has picked up. We can well understand that the Government's financial position may not be as good as the taxpayers and the Government would like it to be considering the huge amount of money required for financing the infrastructure and rural & social sector development. However, any temptation to roll back any of the stimulus measures at this stage or near future is likely to undo the gains of the last 7-8 months. I feel that there are two other pressing issues, viz. (a) Vehicle scrappage policy; and (b) Periodic inspection & certification of all vehicles including private vehicles, on which the Government, the industry and other stakeholders need to work with all seriousness. US and many other developed countries in Europe such as UK, France and Germany have already announced the Vehicle Scrappage Incentive Scheme under which the customers scrapping their old fuel guzzling vehicles in exchange for new, small fuel-efficient vehicles are given incentive ranging from $2000-3000. The scrappage schemes have not only boosted car sales in these countries but are also helping improve environment and road safety. In fact, Hyundai and Maruti Suzuki have benefited a great deal from these scrappage incentive schemes, which have given a further boost to the exports of small fuel-efficient cars to European countries from India. We would suggest to the industry and the Government to work towards introducing vehicle scrappage incentive scheme in India as well. The Government would not lose and, would rather, gain by way of increased car sales leading to higher revenues accruing to the Central & State exchequers. The benefits far outweigh the financial outgo on account of incentives that may have to be doled out by the Government. There is no gainsaying that growing number of road accidents in India and deteriorating air quality is a cause of concern for all of us. Among various other factors, ill-maintained old vehicles are one of the major causes of road accidents and worsening air quality. Since new vehicles being produced are getting increasingly low on emission and come equipped with safety features, it is the old in-use vehicles that constitute a major chunk of vehicles plying on roads, which are largely the culprits. Therefore, there is an imperative need for setting up modern automated vehicle fitness centres across the country under Public-Private Partnership. Automobile dealers would be more than willing to lend their helping hand in this social cause as responsible corporate citizens of the society. Needless to mention, all developed countries have Vehicle Inspection & Certification system in place for all categories of vehicles to undergo periodic testing for emission, safety and roadworthiness. In fact, the UK where I visited recently has over 19,000 MOT centres spread all over the country for periodic inspection & testing of cars. These two issues are high on FADA's agenda for the next year. Hopefully, all stakeholders including the Government and the industry will get going to give shape to modern state-of-the-art vehicle fitness centres across the country in the not-too-distant future. Adverting to FADA's activities since my previous message, close on the heels of our Regional Auto Convention at Hyderabad in July, we had FADA's 45th Annual Session at New Delhi on 27th August 2009. The Annual Convention was very well attended with automobile dealers, representatives of industry and others connected with auto business participating in large numbers. We had distinguished speakers, namely, Dr Pawan Goenka, President, SIAM; Mr Mayank Pareek, Executive Officer, Marketing & Sales, Maruti Suzuki; Mr Anil Dua, Sr Vice President, Hero Honda; Mr Ashok Khanna, Executive Vice President, HDFC Bank; and Dr Rajesh Shukla, Sr Fellow, NCAER, addressing and interacting with us on the occasion. The message from the deliberations of Annual Session was quite clear: (i) Potential of Indian automobile market is huge but automobile manufacturers and dealers have always to be their toes to stand up to the changing paradigm and be future ready; (ii) In this competitive environment, it will be the customer centricity that will take us through; (iii) Automobile dealers have to restructure their working & business model on corporate lines; and (iv) Automobile dealers need to strengthen their balance-sheets to access finance especially with Basel II making their way into the banking system. Perhaps, we could not have had better speakers on the occasion. I am grateful to all our distinguished guest speakers at the Annual Session for having spared their precious time to be with us on this occasion. Look forward to your inputs and suggestions. With best wishes, Yours sincerely, S P Shah