Reverse Gear
Car companies are blaming everything but themselves for slow growth

When Maruti-Suzuki India Ltd catches a cold, the rest of the automobile industry in India goes into sneezing fits. If you analyse Maruti’s latest quarterly results, you can see that it could have easily avoided the pickle it finds itself in now. To start with, there’s the contentious issue of multiple-stage royalties paid out under, what can best be called, opaque conditions. There appears to be no clarity; but if one believes a global banker familiar with the way some of the suppliers, ancillaries and subsidiaries are structured, it is very likely that between 5% and 7% of Maruti Suzuki India Ltd’s turnover in India goes out of India as royalties.
 
And there is no denying that much of the research for the more successful models and variants from Maruti-Suzuki, like the Ertiga and the D’Zire, has been done almost totally in India. But the results appear to blame compensation to dealers for excise reductions on stocks held and employee benefits. The reality is the same with other international automobile manufacturers in India. All of them appear to be in India to blame anybody but themselves. And, at present, this can be drilled down to two specific aspects. 
 
One, the industry has been asking for excise cuts, for years now. If excise rates had gone up, the moan would have been the same; so who benefits in such cases? Certainly not the customer, who is regularly faced with a series of bewildering advertisements on discounts and offers which evaporate into thin air when he visits the showroom. This is where the second reason trotted out—high marketing costs—kicks in. If ‘marketing’ means that your dealer’s salesman on the floor is unable, or unwilling, to provide a single composite proforma invoice spelling out exactly how much it will cost for a commodity called a ‘motor-car’, all your marketing is nothing but an attempt to fool the customer.
 
There is also the moan about high cost of manpower and labour. Why don’t we hear of labour problems or high cost from companies like Amul or Reliance? 
 
In India, the customer votes with her feet and chequebook and is too polite to provide real feedback. The customer increasingly views buying a new motor vehicle as purchasing a commodity, having done all her research online, and taken guidance from a variety of external entities. A dealer becomes somebody who is providing a facility to fill up a KYC (know your customer) form full of useless information like ‘anniversary date’ and collect a payment—a layer of inefficiency she can do without, as she has got used to it with other purchases.
 
Which begs the question: Why can’t the KYC form and make/model interested in be completed online BEFORE? I, as a customer, select from a choice of dealers in my area, so that all of us are prepared—just like when applying for a passport? 
 
It is one thing that people are buying fewer private cars for a variety of reasons—better public transport, improved online commerce and common sense frugality. Manufacturers reporting lower profits or losses and trying to pass price increases to consumers is another thing altogether. If car companies cannot reduce layers of inefficiencies in their own systems, then they’d better forget about getting more customers.
 
A visit to an automobile dealer’s showroom is, often, an event where the prospective customer is viewed as an opportunity for not just the sale of a product, but commission to a range of people involved. If you have dealt with second-hand cars salesmen in America, you will get what I mean—it is hustle, hustle all the way. Do anything, but close the deal.
 
BMW, on the other hand, has introduced a highly paid individual in their showrooms globally, borrowing from Apple, called ‘genius’, whose only role is to explain features of its vehicles and NOT to push a sale at all. Which, if you recall, is what a ‘showroom’ is meant to be. And the best showroom, nowadays, is, as many of us discover, online. 

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COMMENTS

rajivahuja

3 years ago

Valid points.

JAYDIP JHALA

3 years ago

exactly , if I visit a showroom to to review new vehicle ...fist question is 'when u are planning to buy' ?....

The non-deliverable futures market cannot influence the onshore market
The NDF market cannot influence the on-shore USD INR market and to that extent the RBI and government must agonise only over effectively enforcing the FEMA regulations
 
There is quite some compulsive feel, rather than any grounding in logic, to the current hype and hoopla over Non-Deliverable Forward (NDF) market influencing the on-shore USD-INR market. And, no less, a high degree of interlinkage / correlation between the two is confused with causality. This is because the whole debate lacks clarity on how arbitrage actually happens both, in theory, and practice. Only through the organic connect of arbitrage is it possible for information in one market to be seamlessly transmitted to, and influence, the other market. Arbitrage between two discrepant prices of an asset in two different markets requires taking simultaneous long and short positions to benefit from, and eventually align, the discrepant prices. 
 
This arbitrage is risk free in that loss on one position is offset by a matching gain on the other.  But restrictions on who, and how one, can take positions in the on-shore and NDF USD-INR market come in the way of anyone engaging in risk-free arbitrage for NDF market to influence exchange rate in the on-shore market. 
 
More specifically, domestic entities, whether banks or businesses / individuals, are not permitted to engage in any transactions in NDF market. But banks are permitted to take open positions in the on-shore OTC (Over the counter) forward market subject to RBI monitored, and supervised, limits and businesses/ individuals are permitted to engage in on-shore OTC forward market subject strictly to actual underlying - exposure requirement and not otherwise. 
 
In other words, a forward seller (exporter) has to have actual underlying export and a forward buyer (importer/ foreign currency borrower) has to have actual underlying import/ foreign currency loan. Therefore, if FEMA (Foreign Exchange Management Act) regulations are not breached / violated, arbitrage between the two markets is impossible because the net position will always be open and not zero which is the hallmark of any arbitrage. 
If forward premium is higher in the NDF market relative to the one in the on-shore forward market, an arbitrageur will sell forward in the NDF market and buy forward in the on-shore market. But a domestic entity cannot do this because of FEMA regulations which require an actual underlying exposure i.e. either an import order or foreign currency loan. 
 
If there indeed is such an actual underlying exposure then the net position is not zero- a 'sine qua non' for a typical arbitrage - but actually net short because the actual underlying short position of import/ foreign currency loan is offset by the on-shore long forward position, leaving the NDF short position open and thus  exposing the entity to the risk that the US dollar may appreciate which may potentially more than wipe out the entire arbitrage profit ! 
 
Of course, if only there is no underlying actual exposure in the way of import, or foreign currency loan, will a typical arbitrage be possible with the on-shore long forward position exactly offsetting the NDF short forward position, locking in the benefit of discrepant premium ! But this will not be possible if FEMA regulations are strictly monitored and actually enforced. In other words,  only in breach and violation alone of FEMA regulations will the much-hyped arbitrage be possible and in no other way! 
 
The same holds when the opposite is the case viz; the forward premium is higher in the domestic on-shore market relative to the one in the NDF market in which case an arbitrageur will typically sell forward in the domestic on-shore market and buy forward in the NDF market. But, again, a domestic entity cannot do this because of FEMA regulations which require an actual underlying exposure i.e. export order. And, therefore, as before, if there indeed is such an actual underlying exposure then the net position is not zero - a 'sine qua non' for a typical arbitrage - but actually net long. This is because the actual long position of export is offset by the on-shore short forward position, leaving the NDF long position open and thus exposing the entity to the risk that the US dollar may depreciate. This, as stated before, may potentially more than wipe out the entire arbitrage profit! 
 
Of course, if only there is no actual underlying exposure in the way of export will a typical arbitrage be possible with the on-shore short forward position exactly offsetting the NDF long forward position, locking in the benefit of discrepant premium! But again, as before, this will not be possible if FEMA regulations are strictly monitored and actually enforced. 
 
In other words, again, as before, only in breach and violation alone of FEMA regulations will the much hyped arbitrage be possible and in no other way! The foregoing, thus, conclusively proves and establishes that the NDF market influencing the on-shore USD INR  market is illogical and to that extent RBI and Government must agonize only over effectively, decisively, credibly and inviolably enforcing extant FEMA regulations! 
While still on the subject, as regards statistically establishing causality, this can be credibly and effectively done by recourse to the so-called Granger Causality Test. But it is very important that the USD-INR data points must be taken as frequently as feasible for the Granger causality conclusions to be robust and reliable. 
 
Ideally, such data points can be taken at 5 to 1 minute intervals when both the markets are active . Since NDF market is almost a 24- hour market, the data points can overlap the market timings of the on-shore market. Significantly, under no circumstances should Granger Causality Test be applied to closing data points!
 
(VK Sharma is a former Executive Director, Reserve Bank of India)

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Is UP-based Kalpataru group again collecting money from investors, illegally?
Mathura-based Kalpataru group's two companies were barred by SEBI for raising money illegally from investors. Yet, the group has floated another similarly named company and is collecting money under its real estate scheme
 
Uttar Pradesh-based Kalptaru group is again collecting money from investors through its real estate schemes using a new company. Last year, market regulator Securities and Exchange Board of India (SEBI), barred KBCL India Ltd, a unit of Kalpataru group, and its directors from raising money and directed them not to launch any new scheme. However, according to sources, the group is collecting money using its another unit, 
Kalptaru Buildtech Corp Ltd (KBCL) in Uttar Pradesh and Rajasthan by promising huge returns upon investing in a plot of land. 
 
“The protection of the interest of the investors is the first and foremost mandate and therefore steps have been taken to ensure that the Kalptaru group does not collect further funds under its scheme. However, the mastermind of Kalptaru Group is intentionally switching its illegal collective investment scheme (CIS) business under KBCL India to Kalptaru Buildtech Corp (CIN: U45400UP2009PLC038016) or KBCL. They are using the similarity between the names of KBCL India (which is barred by SEBI) and KBCL and collecting money by creating confusion,” the sources pointed out.
 
The sources said, “Kalptaru Buildtech Corp is inviting contributions to invest in equated monthly instalments (EMIs) in land. The investors are being given an option to withdraw from the delivery of land and take their money with promised returns. In other words, this company is conducting CIS activities under the garb of real estate operations. This company raises deposits in the disguise of advances for unknown real estate projects. The weirdest fact in this case is, the investors are not even aware of the location of the plot and are not sure whether the land has been purchased or not by the company. As land is a physical asset, there should always be clear holding to prove ownership. A person can only own the land once physical possession is taken. Promoters of KBCL are allegedly siphoning the monies collected and are using a sales network comprising local persons who are offered hefty commissions. The agents of these companies recruit more agents and they in turn recruit more agents.” 
 
Kalptaru group, however, had denied running a CIS without taking permission from SEBI. It states that KBCL India is a public limited, listed company and the group is engaged in construction, development and management of agricultural land, townships, shopping malls and group housing society in various states in India and did not run any collective investment scheme. 
 
Last year, SEBI in its order barring KBCL India and the company directors, Rakesh Kumar, Vishvnath Pratap Singh and Shashi Kant Mishra, had said, “KBCL is  prima facie engaged in fund mobilizing activity from the public, by floating/ sponsoring/ launching 'collective investment scheme' as defined in Section 11AA of the SEBI Act without obtaining a certificate of registration from SEBI as required under Section 12(1B) of the SEBI Act and the CIS Regulations.”
 
“I find that the instant 'Scheme' offered by KBCL under the guise of 'business of real estate/ sale-purchase' is nothing but a smokescreen for its fund mobilizing activity. I find that such fund mobilizing activity falls within the ambit of 'collective investment scheme' as defined under Section 11AA of the SEBI Act and the same has been carried on by KBCL without due registration from SEBI. In this context, I note that protecting the interests of investors is the first and foremost mandate for SEBI and therefore, steps have to be taken in the instant matter to ensure only legitimate investment activities are carried on by KBCL and no investors are defrauded,” S Raman, Whole Time Member of SEBI said in his order issued on 12 September 2013.  
 
SEBI had also asked KBCL India and its directors not to dispose of properties and assets acquired through its CIS and also not to divert the funds raised from such schemes. The company has also been restrained from launching any new schemes.
 
However, this was not the first time, the Mathura-based Kalpataru group  faced the wrath of the market regulator. Earlier in 2003, SEBI  debarred  Kalptaru Agro India Ltd (KAIL) and its concerned officials from operating in the capital market for five years for failing to return money to investors as per regulators orders.
 
Few months ago, the Bombay High Court restrained Kalptaru Buildtech Corporation from directly or indirectly using the name or mark 'Kalptaru' or any other deceptively similar mark as part of its corporate or trading name. Mumbai-based real estate company, Kalpataru Properties Pvt Ltd  had dragged Kalptaru Buildtech Corp to court for violating its intellectual property rights over its trademark and name. “Kalpataru Properties came across the other company using the name Kalptaru Buildtech Cor Ltd in 2013 and asked it to cease using the name. But since the defendant continued with the use of the same name, the matter landed in court and the court is satisfied that ...the mark is solely and exclusively associated with the Plaintiff (Kalpataru Properties),'' the HC had said in its order.

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