The German OEM's group of 45 dealers in India are contemplating taking legal action seeking compensation for loss due to termination of business. Twenty-eight of them, though, are learnt to have accepted the company's support package for servicing.
01 Oct 2018 | 11375 Views | By Mayank Dhingra & Sumantra B Barooah
After entering the country through a JV with the Pithampur-based Force Motors in 2003, leading German commercial vehicle player MAN Trucks has seen a rather fluttery ride in the Indian market. Where it bought out the JV stake to independently play in India in 2006, it suddenly announced to cease ...
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After entering the country through a JV with the Pithampur-based Force Motors in 2003, leading German commercial vehicle player MAN Trucks has seen a rather fluttery ride in the Indian market. Where it bought out the JV stake to independently play in India in 2006, it suddenly announced to cease all domestic operations on August 6, shocking over 300 of its employees and thousands of those working for its 45 dealer principals across the country.
The key reason for the exit, as in most cases in history, is the tough and challenging Indian market, where MAN couldn’t sustain viable sales volume. The OEM cumulatively sold around 20,000 trucks in India.
Where it had projected an ambitious plan of introducing its high-end buses as well as 440hp tippers to its dealers during the launch of its EVO BS IV range in India in May last year, it couldn't realise the plans and that has affected dealer partners who had made investments towards future preparedness.
While it offered a Voluntary Severance Scheme to around 200 of its direct employees, the company has announced no plan to compensate its dealers, who have recently made fresh investments as high as Rs 2.5 crore into their establishments and are sitting on piles of losses.
According to a MAN Trucks dealer in South India, “The OEM has only extended its support in servicing MAN vehicles, where according to the law, an OEM is required to provide support for at least 6 years after shutting down operations."
“After that, what? We haven't received any compensation from MAN yet," says the dealer, who prefers to remain anonymous. MAN was this dealer's first tryst in retailing commercial vehicles. The dealership was set up ten years ago and Rs 14 crore has been invested in the enterprise which pays around Rs 7 lakh every month cumulatively to its employees.
MAN Trucks India had a contract each for sales and service, with its dealers. The sales contract got terminated with a 3-month notice period while the service contract continues with additional support.
Another dealer principal in Lucknow, who expanded its ancillary business in the CV space and ventured into opening a dealership 17 months ago in April 2017, says that he took the risk of even losing Rs 5 lakh for the first five vehicles sold, just to establish the brand in the state of Uttar Pradesh (UP), and has invested a total of Rs 2.5 crore by taking bank loans to have not made a single penny in profit.
“We have put in our money in the infrastructure to set up the workshop, putting in the tools and equipments, keeping the necessary spare parts stock, and also in getting State Transport Approvals (STAs) for MAN vehicles in UP from our own end. Even if the company has, we cannot run away from the market. We have sold these vehicles on our face value, and we ought to be there for our customers,” said the dealer principal on request of anonymity.
However, with just 41 vehicles sold over the last two years, there isn’t any significant vehicle parc for the business to be viable and to support the 55 people staff it employs. “It is impossible to continue to run the business anymore when we have hardly sold any vehicles,” said the dealer principal. With employee severances to be shelled from their own pockets, and without even reaching the stage of profitability yet, “We are actually in hot waters and don’t know how to make ends meet,” he added.
Dealers left in the lurch
While the company had shown interest of investing close to Rs 2,000 crore into the Indian market in new products and in localising its BS VI technology too, dealers say that it has not had any fruitful discussions with them, or heard their grievances, and has left them stranded with uncertainty. “We have met the management a few weeks back only to be told why we wasted money on our flight expenses for the meeting,” revealed the dealer.
“It is just not about 40 dealer principals, but the cascading effect on the people depending on the dealerships,” says John K Paul, president, Federation of Automotive Dealers Associations (FADA).
“Considering that a dealership business is capital intensive, such sudden exits will leave genuine dealers broke for absolutely no fault of theirs and others paying the price too, because they are viewed with caution. Dealers tend to lose their credibility and reputation built up over years and generations for an action done by the OEM. Along with the brand, customers trust their dealers, and in case of a multi-national giant, a dealer’s credibility is very important for getting success in the market,” Paul added. To avert any such problem and protect the interests of dealers, FADA plans to approach the government with an appeal to tweak franchise laws in the country.
“MAN has offered huge severance packages to their employees while quitting. What about the dealers? Are we not part of the same family?” Paul questioned strongly. MAN is the second brand from the VOlkswagen Group to exit India. Scania was the first.
With the company turning cold to its dealer partners, the dealers have huddled together and are considering legal action against MAN Trucks India, hoping to settle what they deserve in support from the company in terms of their dues.
When contacted for its response to this news story, a MAN Trucks India spokesperson refused to comment.