Covid-19: As vehicle dealers battle for survival, auto OEMs gear up to help

G Balachandar Chennai | Updated on March 31, 2020 Published on March 31, 2020

Companies such as Maruti Suzuki, Toyota and a few others are working on plans to support and protect their dealers   -  Shanker Chakravarty

Vehicle makers are working out plans and support measures for the sustenance of their dealer partners to manage the crisis arising out of 21-day nationwide lockdown, announced to fight the Covid-19 outbreak.

As retail sales have stopped completely due to the lockdown, automotive dealers are facing several challenges to sustain their business.

Dealers with huge inventory and high BS-IV stocks are expected to face challenges with retail sales halted and their working capital locked up. Consequently, they have been facing major cash flow challenges.

Companies such as Maruti Suzuki, Toyota and a few others are working on plans to support and protect their dealers.

“We are relieved in some ways as our inventory is normal and BS-IV stock is also less. So, our dealers will be under less pressure as compared to others. We are working out various measures to help our dealers by way of loan rollovers, free cash-flow etc,” Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India Limited, told BusinessLine.

Inventory funding

If the lockdown is lifted by April 15 and dealers start working, they will face issues relating to inventory funding as their inventory may exceed the bank norm of 45 days.

Maruti Suzuki has been talking to about 12 banks with whom it has an association to seek inventory financing of dealers and a rollover period of three months in addition to the three-month moratorium announced by the RBI for repayments.

“The recent announcements for deferment of payments is not very clear on inventory finance and the RBI has left it to banks to decide. We are talking to the banks for extension of the period for repayment of inventory loans,” said Srivastava. The logic here is that dealers have to hold inventory for a longer period in the post-lockdown period as retail action will probably pick up slowly.

In addition to rollover, auto OEMs, including Maruti, are calling for lower interest charges on loans.

Mercedes-Benz India is also working closely with its dealer partners with its business continuity plans. “We are aware that at this moment, cash flow is most important and we have taken steps to facilitate liquidity for the dealer network,” said Martin Schwenk, Managing Director & CEO of Mercedes-Benz India.

Toyota Kirloskar Motor has come out with a ‘COVID Package’ to ensure liquidity, thus protecting dealer partners for about 38 to 75 days based on individual dealer overheads by giving cash-flow support.

To ease dealer cash flow, Maruti Suzuki is also in the process of immediately paying up-front deferred dealer funds such as incentives payments etc, which are normally processed over a period of three months.

A dealer for a leading two-wheeler maker said the immediate-term issue was cash flow and his OEM has agreed to release all pending claims immediately to ensure free cash flow to pay expenses such as salaries.

Published on March 31, 2020

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