Covid-19 Impact: Automakers may rehaul supply chain to ease dealer inventory woes
Shashank Srivastava – ED sales and marketing – Maruti Suzuki told ET when an unprecedented event like Covid-19 happens, there is a massive change in perspective of all stakeholders, especially when the future course is uncertain. There will be fundamental rethinking of all aspects of business – consumer behaviour, brand preferences, lifestyle changes, value equations, business relationships etc.
“This will expectedly lead to questioning and reexamination of various business processes by all dealers, suppliers, OEMs etc and of all systems like inventory & working capital management, customer interaction, enquiry management, brand management and indeed the entire sales process. And that process will inevitably be quick,” added Srivastava. If automakers indeed revamp their inventory management, it will provide relief for dealerships and banks as the major pain point for dealers and banks has been inventory funding.
Already, there are about a dozen stockyards across the country by top 10 vehicle makers and there will likely be another half a dozen to ensure adequate stock availability and ease the burden on dealers. Ashok Khanna, former group head for vehicle loans at HDFC Bank, said that in the post-lockdown era, inventory control will require carmakers to assess demand more rigorously and not flood the dealerships to help reach monthly sales targets.
“There should be no pressure on dealers to provide funds to achieve the targets – gone are the days when dealers used to hold 45 or 60 days’ inventory. The first effort must be to return to the banks what has been borrowed. The limits must be cut to 15 days stocks at the max. OEM stock depot is the final answer to this problem,” added Khanna. While the shutters were down for about a month and half, sales executives at dealerships and automakers have reached out to more than 2.5 million prospective buyers, apprising them of the safety protocols and generating hot leads for the sale of 250,000-300,000 vehicles, industry insiders said.
While this would be just enough to cover a month’s sales at pre-Covid levels, dealers don’t want stock to pile up at their end, as inventory cost accounts for much of their working capital. The Federation of Automotive Dealers’ Association (FADA) president Ashish Kale said that given the demand uncertainty, there is a need to resort to “just-in-time” supply. “As against holding 25-30 days’ stock at the dealers, we are urging the carmakers to bring down the stock to 10 days,” he said.
Automakers could set up regional stockyards for the rest. “Some are seriously considering and planning setting up regional stockyards where another 15 days’ stock can be maintained and the balance at the factory,” said Kale. To be sure, many companies had already moved to retail sales from wholesale. In a normal environment if wholesale was for example 100 cars, a carmaker would replenish 100 cars, but in the current environment it has got to be 75 to 80 cars, i.e. retail should trigger dispatch than the other way round, said another senior executive at one of the top five carmakers. Nikunj Sanghi, a Mahindra & Mahindra and Hero MotorCorp dealer, said that about 80% of a dealer’s working capital was toward inventory financing. “We have to look at ways to reduce stocks,” he said. Dealers can keep some stock of fast-moving models, but for slow-moving ones, supplies should be based on firm orders, he added.