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Maharashtra lockdown could spell doom for the financial health of automobile dealers

Automobile Dealers in Maharashtra are in big trouble. The rapid spread of the pandemic and the restrictions imposed in the state, including weekend lockdown has spread panic amongst the people. The Automobile Dealers too have been affected by this situation and alarmed by the prospects of how it could be a severe dampener on the festival sales.

The Automobile Dealerships, covered under the Shops and Establishment, Act, may have to remain shut till 30 April, said Ashish Modani, vice-president, ICRA.

The state has been recording infections in excess of 55,000 per day and rising, since the last seven days. The situation, to say the least, is especially alarming in the Financial Capital of India, Mumbai as also the major business centers of Thane, Pune, Nagpur, Aurangabad, Nashik, Kolhapur, and Nanded.

The Chief Minister of Maharashtra is possibly looking at stricter measures including imposing complete lockdown, extending for 2-3 weeks, across the state, to stem the rise in infection cases.

The Class X and XII exams of the state board have already been postponed. The consumer sentiment across Maharashtra is subdued in spite of the grand festivals of Gudi Padwa (Marathi New Year) and the advent of the Ramadan month.

The period also sees the marriage season peaking, which also results in a positive uptick for sales of Automobiles. “Festive periods like Navratri and Gudi-Padwa falling due in April 2021 account for a fair share of annual vehicle sales across the country and especially in Maharashtra. Accordingly, lockdown restrictions will impact vehicle sales and thereby the financial performance of auto dealers, who have struggled during the past one year," said Modani.

Maharashtra sees a huge upward swing in sales revenues and the Automobile Industry has seen two consecutive years of decline due to the economic slowdown and now the slowdown. Along with the major Auto Manufacturers, who are largely based in the Mumbai – Pune – Aurangabad belt, there has been a steep fall in revenues and profits of the very large number of Auto Component Manufacturers too.

Many MSMEs have closed down.

“Restriction on dealership operations could have short term impact on liquidity, as most dealerships rely on inventory funding facilities which have a pre-defined payment period, and they may require refinancing to tide over the possible deficit in cash flows. Support from OEMs as well as financiers thus remain critical for Maharashtra-based automobile dealerships in the interim period," added Modani.

Maharashtra contributes to almost 20% of the revenues generated by the Auto Industry and any break in the state will have national ramifications. The lockdown could also see, once again, the migration of the semi-skilled and skilled to their home states largely to the northern and eastern states. This would affect the services industries, labor availability and also affect the consumption of food grains and other products across the state, having a disastrous cascading effect on the economy.


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