Financial Daily from THE HINDU group of publications
Tuesday, Mar 09, 2004
Marketing - Channels and Franchises
Despite new rollouts, car dealers are not smiling
Bangalore , March 8
IT may be raining cars in the country with the auto sector posting a robust 20 per cent rise in sales in 2003, but if you thought car dealers were making loads of money, you may be wide off the mark.
Behind the glitz and glamour of selling cars, automobile dealers' worst fears are coming true. The future is not shining for them anymore because of extremely low margins, tough competition and believe it or not superior technology which drives cars today.
In fact, every time a car manufacturer decides to expand his dealership network, it is depressing news for the existing auto dealers. Customers may end up getting more discounts and freebies than they ever got before, but what it means for the dealers is far lesser cash in their pockets.
"It is ironical. But the fact is while the auto industry is growing at 20 per cent, auto dealers are seeing negative growth," Mr Deshnidhi Kasliwal, President of the Federation of Automobile Dealers' Association (FADA), told Business Line. He said dealers make between 1.5 per cent and 2 per cent on sale of each car. But tough competition forces them to part with even some of the money they make from margins given out by the car manufacturer.
However, while the US and other developed markets aren't exactly booming, dealers there get up to 18 per cent as margins and with fee from selling insurance and other services, they make enough money to sustain themselves for the rainy day.
In India, margins have been falling for quite sometime now. In the sixties, it was as high as 18 per cent to 20 per cent. Since then, instead of passing on the taxes levied on the cars to the customers because of tough competition, automakers have lowered the margins to their dealers.
"Considering the investment which goes into setting up the infrastructure and running the business, the returns are disproportionately low driving out the genuine dealers from the organised sector," says Mr Sharath Vijayaraghavan, Vice-President of Sundaram Motors, one of the biggest auto dealers in south India.
For the automobile dealer, nearly 35 per cent of the total revenues come from after sales service and sale of auto components. But with superior technology driving cars today, it takes a long time before auto parts wear out. But car manufacturers believe that dealers can still make enough money if they run their businesses prudently. The Vice-President (Marketing) of Ford India, Mr Vinay Piparsania, said that dealers could no longer hope to run their business as absentee managers. "They have to be hands-on managers and run a tight ship," Mr Piparasania said.
The General Motors' Vice-President for corporate affairs, Mr P. Balendran, said his company works closely with its dealers.
"Recently, we rolled out a `Retailer Business Plan' to not only ensure dealers meet their targets, but also look at several downstream revenues like in-house financing, used cars, insurance, optional warranty and accessories, besides their regular service revenue," Mr Balendran said.
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