Automobile dealers seek protection from loss due to sudden exits of foreign automakers

September 13, 2022 08:56 pm | Updated 09:04 pm IST - New Delhi

Automotive dealers on Tuesday sought protection from loss in case of sudden exits of foreign automakers from the country, besides seeking an equitable say in the running of business through a model dealer agreement.

The Federation of Automotive Dealers Associations (FADA) said many foreign automobile manufacturers have different contracts for dealerships in India, which are more stringent compared to what they have in their home countries.

“There have been dealer agreements between OEMs and the dealer and primarily, it is one-sided agreement. It only expresses the point of view of the the OEMs and dealers have always felt the need for a balanced model dealer agreement,” FADA president Manish Raj Singhania told PTI here on sidelines of the FADA auto retail conclave.

He said through the Model Dealer Agreement (MDA) unveiled on Tuesday, the dealership community had tried to create a level-playing field between the OEM (original equipment manufacturer) and auto dealerships.

“If there is any kind of issue in any auto industry or in the business, both should be able to get adequate compensation or adequate settlement, it should not be one sided,” Mr. Singhania added.

One of the key issues that the MDA seeks to address is the fallout of foreign auto manufacturers leaving India and the resultant sufferings of the dealers, he said.

“We have had few exits of OEMs, such as General Motors and Ford from India and dealers were in a position to lose a lot of money,” Mr. Singhania said.

He lamented that the foreign OEMs do a lot of feasibility study even taking up to five years but while exiting it is always sudden.

“Dealers are stuck with vehicle stocks, spare parts stocks, we take term loans, we take funding from the bank, all that gets stuck up, it’s a sudden exit,” he said.

They should have a planned exit, so that dealers are also able to liquidate the resources and pay the bank loans, he asserted.

There has been a lack of transparency on the part of such OEMs, he said, adding dealers would read about a company lining up ten models for launch and “after three months, they [company] just announced the exit.”

Also, he said there was a case of OEM issuing letter of intent for opening new dealership and within a month announced exit from India.

The MDA seeks to protect dealers from such shocks, he said.

When Ford decided to exit from India in 2021, some dealers claimed they were taken by surprise as just a month before the announcement the company had issued letter of intent for setting up new showrooms.

In 2017, when General Motors exited India, dealers were left in the lurch claiming they suffered around ₹1,000 crore and were offered compensation of just about ₹100 crore.

The company had, however, maintained that it was providing its dealer partners with a fair and transparent transition assistance package based on a methodology that is consistent across all dealers.

Mr. Singhania said the nature of contract between a foreign vehicle maker and dealers in India is also different from what they have in their home country.

In India it is more stringent, he said, adding, “here, even if I want to change a comma, I cannot do it. I have to just sign on the dotted line. That’s not an agreement, that’s a kind of forcing you to do in agreement.” He said dealers are seeking cooperation from OEMs to implement the MDA in future, as and when the existing contracts are renewed, while also signing up new ones.

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