Car makers to release Rs 1800 crore advances to dealers under Covid-19 package

MUMBAI|NEW DELHI: Carmakers operating in India are making advance payments of about Rs 1,800 crore to their dealer partners so that automotive retailers can pay staff and statutory dues through the lockdown, which has meant Rs 20,000-crore worth of inventory is stuck in showrooms.

The additional interest burden alone for dealers, stuck with the unsold stock, amounts to Rs 200 crore, which vehicle makers are pitching forward to bear a part of it.

Carmakers would have otherwise made these payments by April end or May in the normal course. These pay-outs are being made through to the last week of March and first week of April.

Incentives are also being released in full against the usual parameters of performance, which may have been lower.

Almost half of this package is contributed by Maruti Suzuki, which controls 50% of the market and balance is released by the rest. Hyundai called it ‘Hyundai cares’, Ford called it ‘going further together’ and Toyota Kirloskar called it ‘Dealer Support Package’.

Naveen Soni, senior vice-president at Toyota Kirloskar Motor (TKM) told ET that for him, the health of his dealers – his ‘first customer’ – is the biggest priority.

“Dealers are our biggest asset. Since the lockdown, the focus has been to assess their health. We have come out with a package that will ensure that cash flows of the dealers are taken care of the next 38-75 days,” he said.

Dealers are currently grappling with two major challenges – no cash flows and interest payment obligations. Advance payments should help them face the short-term challenges of wage bills and rents.

To be sure, this is just the first step taken by automakers, which may have to do more to ensure the financial health of the retailing apparatus, if the normalcy takes a while to return beyond 14th April, the last day of lock-down

“We are in for another year of double digit decline. Clearly, the current spread may not be needed for lower volumes, so expect more dealerships to shut shop. Going ahead, the support from automakers towards dealers may be selective, as against all of them,” cautioned a senior executive, requesting anonymity.

Carmakers are looking at interest subvention on unsold inventory and negotiating with banks to extend the payments moratorium to auto retail chains.

The likes of Honda, Toyota, Renault, and FCA have agreed to bear a part of the interest burden of the dealers for 21 to 30 days. There are others that are negotiating with banks to have the rates reduced.

Shashank Srivastava, executive director (marketing and sales), Maruti Suzuki, said that because of the lockdown, there is no retailing. But the clock on inventory financing is ticking. This is a huge burden on dealers and Maruti is in touch with all the banking partners for a moratorium on inventory financing interest.

“Our stock levels are not high and our BS4 stocks negligible so that puts us in a slightly better position. But dealers will be stressed due to the broken cash flows. We have released a large amount of cash to our dealers to help them manage this cash flow challenge and ease this situation,” Srivastava said.

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