2 lakh jobs cut across auto dealerships in 3 months

With no immediate signs of recovery, the Federation of Automobile Dealers Associations (FADA) feared the job cuts may continue with more showrooms being shut in the near future and sought immediate Central intervention such as GST reduction to provide relief to the auto industry. “The majority of job cuts have happened in the last three months...It started around May and continued through June and July,” FADA President Ashish Harsharaj Kale said.

“Right now most of the cuts which have happened are in front-end sales jobs but if this (slowdown) continues, then even the technical jobs will be affected because if we are selling less then we will also service less, so it is a cycle,” he added.

On how many jobs have been cut across the dealerships, he said, “Close to about two lakh.”

“It is a guesstimate that our members have already cut 7-8 per cent of the jobs in most of the dealerships as the degrowth has been very high,” he added.

Around 2.5 million people were employed directly through around 26,000 automobile showrooms operated by 15,000 dealers. Another 2.5 million are indirectly employed in the dealership ecosystem. The two lakh jobs cuts in the last three months are over and above the 32,000 people who lost employment when 286 showrooms were closed across 271 cities in the 18-month period ended April this year. However, he said, “The way the first quarter has panned out despite good election results and the Budget, the degrowth continued. It is clear now that a proper slowdown has hit us. Now dealers have resorted to cutting manpower.” Many dealers and automakers also cite a deepening liquidity crunch among shadow banks that has been the biggest single factor in an auto sales collapse, which some fear may lead to over a million job losses. Non-banking finance companies (NBFCs), or shadow banks, have dramatically slashed lending following the collapse of one of the biggest, IL&FS, in late 2018.

IL&FS, a shadow banking biggie and its defaults and unravelling, amid fraud allegations, have dried up funding for rivals and led to a surge in their borrowing costs.

Non-bank or shadow banking firms generate credit outside traditional lenders, by means such as collective investment vehicles, broker-dealers or funds that invest in bonds and money markets.

NBFCs have in recent years helped fund nearly 55-60% of commercial vehicles both new and used, 30% of passenger cars and nearly 65% of the two-wheelers in the country, said ICRA. To aggravate matters, the stress in the autos market has also prompted banks to begin trimming their exposure to the sector. “The car doesn’t sell, it’s the finance that sells,” said R Vijayaraghavan, a senior marketing consultant at the same Mumbai dealership. “Today the finance is not selling, so the cars are not selling.”