‘Auto dealers will have to diversify operations to maintain market position’: Manish Raj Singhania

Auto dealers will have to diversify their operations to maintain their market position. That’s the word coming in from Manish Raj Singhania, the President of the Federation of Automobile Dealers Associations of India. Speaking at the second edition of the Finance and Insurance Summit, Singhania stressed the importance of how auto dealers will have to look at innovative strategies such as cross selling. “By diversifying our offerings, we can maximise revenue, both for auto dealers and insurance companies, thereby creating a more robust and sustainable business model,” he added.

He further added that the industry needed to contemplate the possibilities of a comprehensive insurance product, specifically designed for auto dealers, covering every aspect of a dealer's business, including showrooms and workshops. This 'umbrella policy' would offer an added layer of security and ease of operation for dealers, thus fostering a more resilient auto retail ecosystem.

“We aim to make finance and insurance more accessible and affordable, to catalyse a resurgence in vehicle purchases and thus bolster our auto sales.” His points gain prominence against a backdrop of issues that dealerships face today, such as rising interest rates, a slow-moving vehicle inventory build-up at dealerships, supply chain constraints, and the increasing cost of funds, among other issues”.  Singhania said that issues impact dealers' ease of doing business and together, they underscore the necessity for cooperation and coordination within our industry.

Smart use of financial leverage can provide opportunities for growth, but it must be balanced with prudence to maintain a healthy balance sheet, adding that the pressure of excess inventory was another concern that needed strategic thinking. Banks and finance companies play a critical role in this context. A healthy dealership balance sheet necessitates an optimum level of inventory - enough to meet customer demand, but not so much as to burden the dealership with over-leverage.  There are concerns about the rising days of inventory, which presents a worrying picture. The days are inching up from 45 to nearly 60 days of inventory, as per the panel discussions that ensued. Panellists spoke on how they were in the ‘orange zone’ when it came to inventory pileup, and this was a concern that would need to be addressed at the earliest.

Decisions about real estate, whether to lease or own premises, also have significant financial implications. The choice can affect liquidity, profitability, and the ability to respond to changes in the market.

To navigate these issues with ease, dealers need to be aware of the variety of financial products available in the market. Education and communication are crucial to help dealers identify superior options that can contribute to cost savings and more robust financial performance, he added.

He further stressed on the role of mergers and acquisitions in shaping the industry’s future needs, which could provide opportunities for consolidation, cost savings, and synergies, to build a more resilient industry.

He pointed out that from Germany to Japan, international markets have adopted innovative practices, that we can learn from and adapt to fit our context. He further explained that in Germany, auto manufacturers and Dealers, finance firms and insurance providers work in tandem to offer 'all-in-one' packages for customers, simplifying the process of purchasing, insuring, maintaining and owning a vehicle.

In Japan, 'Telematics Insurance' leverages advanced technology to offer custom insurance packages based on driving habits, resulting in cost-effective solutions for customers and lower risk portfolios for insurers. These are practices we could explore adapting to our own context.

“If we take a cue from international practices, for instance, in the USA, where financiers partner with dealers to provide inventory floor planning – a practice that supports both the dealer in maintaining a comprehensive vehicle line-up and the financier in ensuring their investment is safeguarded,” he said.

Cooperation among various stakeholders to gain market share was the underlying theme that emerged from the conference, with Ramesh Iyer echoing a similar sentiment at the conference. With auto sales continuing to be sluggish, and new customer acquisition getting increasingly difficult, Ramesh Iyer, Vice Chairman and MD of Mahindra Finance says that the industry needs to collaborate and not compete, to increase its consumer base. Iyer said that the working capital interest has to be super efficiently managed with inventory, and financers can act as co-lenders and provide guarantees for dealers to reduce their cost of borrowing, but such deals can only be when dealers work transparently and maintain discipline.

Also read: ‘Auto dealers must collaborate, not compete to improve margins’: Ramesh Iyer