[MadAbtCars]

Thanks for the thread. It is an eye opener. We have had this discussion many times amongst friends as to start a Car dealership. Don't ask why we never started as most of those discussions were forgotten the morning after when we woke up

Originally Posted by smartcat

COMPETENT MARUTI

Is the business profitable?

Attachment 1769783

Originally Posted by smartcat

COMPETENT MARUTI

What are the margins of sales & service departments?

If we consider sales and service departments as independent entities, it is clear that there is a large difference in operating margins. But on absolute numbers, profit from sale of cars is higher than profit from servicing of cars. However, remember that car sales need higher initial investment (real estate, inventory etc)

Attachment 1769825

Originally Posted by smartcat

COMPETENT MARUTI

What are the margins on cars, spare sparts etc?

Attachment 1769919

- Maruti offers a decent profit margin of 6.5% on their cars to their dealers. Of course, fast selling and lower priced Alto might have much lower margins than others.

I am little novice on these financial terms. If I have read it correctly in the first chart you are referring to Net Profit (0.98% Total), while in the second it is Operating Margins or EBIDTA (2.14% Total - Sales + Service) and whereas in the third it is Gross Profit (6.5% Car Sales). Based on these understanding I have made some further analysis as under. Please correct my understanding wherever it is incorrect.

Originally Posted by smartcat

SHINRAI TOYOTA

Shinrai Toyota losing money every year and Competent Maruti making profits does not mean anything (with respect to brands). That's because profits are significantly affected by parameters like interest costs, rental expenses etc. Since car sales & servicing is capital intensive in nature, businesses that borrow from banks for working capital, inventory etc will see red on their balance sheets. Businesses that invest their own capital will show profits.

Absolutely true. However in Dealership business model some amount of thought has to be given to Net profit as well. Why ? Because the OEM's have a great deal of say in every fixed or operating expense of a dealership. For instance the showroom layout, area, lighting, facade etc has to be in line with OEM standards. Even the Sales people being recruited are required to have certain amount of educational qualifications & skill set in line with OEM standards. I have experienced this first hand when I bought my first Toyota. The customer interaction level that you get at a Honda or Toyota dealer is way far superior than what you get at Maruti Suzuki dealer. At least it was 4 years ago, not sure of now.

Hence dealerships do not have much say in controlling or reducing fixed or operating costs

Just for the sake of argument & from the data shared above, Maruti gives a 6.5% Gross profit on Cars sold whereas Toyota gives 11.21%. Considering Interest & Rental exposure are similar in the above two cases when it comes to net profit Maruti returns 0.98% compared to (0.43)% that of Toyota. Thus it can be fairly said that the upkeep and day to day operations cost for a Toyota dealership is way higher than that of a Maruti. For instance employee salary at a Maruti dealership is 2.75Cr whereas for Toyota it is 3.9Cr which is roughly 2.7% & 3.2% of Total Sales respectively.

Some of these insights I have also received from a close friend of mine who runs a 3M outlet. As per him even though the revenue he makes is quite considerable but the OPEX cost are very high. He cites many examples of 3M outlets who have after operating for a few years have shifted to much smaller outlets to bring down OPEX costs.

Originally Posted by smartcat

SHINRAI TOYOTA

Shinrai operates two Toyota dealerships in Mumbai and here are their numbers:

Shinrai Shut shop sometime last year and it was taken over by Madhuban Toyota. While it was shinrai they had a showroom in worli (from where I bought my first Toyota ) However that portion is being converted to some real estate now I guess and Madhuban has opened a new outlet on Lower Parel. The Nariman point outlet still remains and is operated by Madhuban Toyota.

However can't really comment whether Shinrai shut shop due to low net profits. Since the Worli Showroom + Service center was owned by them and no prizes for guessing what sort of deal (official + unofficial) they would have got from Real Estate developers for that prime piece of Land.

[SmartCat]

Originally Posted by MadAbtCars

Shinrai Shut shop sometime last year and it was taken over by Madhuban Toyota.

You are right! Madhuban bought Shinrai for Rs. 28 crores
https://www.business-standard.com/ar...2400361_1.html

[pranavGTI]

Like minded BHPian businessmen who are already into any kind of retail business can think of entering into dealership if there is a good amount of capital. If not few BHPians can partner to start A.S.S. This is a very lucrative business as the profit margins are huge and moreover spare parts and accessories have extended shelf life. Can look for a manufacturer authorized service center where this will be listed in the manufacturer’s website. This will gain customer trust. As this will be primarily the A.S.S with sides included (Insurance, detailing and accessories). Doesn’t need more man power as it needs few service advisors (BHPians a.k.a partners can think to be) and good technicians.

[PrideRed]

Originally Posted by pranavGTI

Like minded BHPian businessmen who are already into any kind of retail business can think of entering into dealership if there is a good amount of capital. If not few BHPians can partner to start A.S.S. This is a very lucrative business as the profit margins are huge and moreover spare parts and accessories have extended shelf life. Can look for a manufacturer authorized service center where this will be listed in the manufacturer’s website. This will gain customer trust. As this will be primarily the A.S.S with sides included (Insurance, detailing and accessories). Doesn’t need more man power as it needs few service advisors (BHPians a.k.a partners can think to be) and good technicians.

I think getting dealership of an popular manufacturer is not that easy. Unless you already own/run couple of other dealership, the Manufacturer won't agree to a newbie. Existing dealer nexus is very strong and they by all means discourage a newbie. I personally have seen this when somebody whom I knew wanted to be primary distributor for Honda 2 wheeler(He used to sell Bajaj earlier).

[pranavGTI]

Originally Posted by PrideRed

I think getting dealership of an popular manufacturer is not that easy. Unless you already own/run couple of other dealership, the Manufacturer won't agree to a newbie. Existing dealer nexus is very strong and they by all means discourage a newbie. I personally have seen this when somebody whom I knew wanted to be primary distributor for Honda 2 wheeler(He used to sell Bajaj earlier).

I agree this in cities where there is a huge competition. But in small towns there is still opportunity. In my hometown TVS (Sarathy TVS) and Yamaha (Navaladi Agency) dealers both of them are newbies. These dealers have some advantages over the Metro and Tier-I city dealers especially in operating cost and overheads with same profit margin per vehicle. Moreover if dealership is difficult, just the authorised A.S.S can be looked up, this is more lucrative than selling new vehicles.

[PrideRed]

Originally Posted by pranavGTI

I agree this in cities where there is a huge competition. But in small towns there is still opportunity. In my hometown TVS (Sarathy TVS) and Yamaha (Navaladi Agency) dealers both of them are newbies. These dealers have some advantages over the Metro and Tier-I city dealers especially in operating cost and overheads with same profit margin per vehicle. Moreover if dealership is difficult, just the authorised A.S.S can be looked up, this is more lucrative than selling new vehicles.

The issue I mentioned was in a small town. Problem here is, you mostly get a sub dealership and hence a part of your profit goes to main dealer. Other problem with smaller town is volumes, any dealership to be profitable needs more footfall. Yes the operating costs are less but then margins are also lesser. Since the smaller towns are growing, larger dealers from nearby bigger cities are opening their outlets to avoid competition. You can make good profit as you mentioned but things are getting difficult day by day.

[blackwasp]

Originally Posted by pranavGTI

Moreover if dealership is difficult, just the authorised A.S.S can be looked up, this is more lucrative than selling new vehicles.

Unfortunately, authorised ASS is also tricky. FYI, the place where I service my Punto, a Fiat authorised workshop is not allowed to service Jeep vehicles due to some deal with Landmark (the authorised dealership of Fiat and Jeep in Mumbai). This is one more reason for some of the current Fiat owners to not upgrade to Jeep. Once you find a competent service guy, its hard to go elsewhere, buying a new car is a one time interaction, but service is the key.

I also know for a fact that existing dealerships have strong agreements with OEMs about such things. Older dealers form a Nexus and make sure the newbie has to shut shop. Incase of Maruti, none of the authorised service centres can open job cards for Nexa vehicles. Only few of the large dealerships in a city service Nexa models.

It's always better to open a FNG ~multicar garage with paint booth and stuff for car maintenance post the warranty period. You will find quite some BHPians who have opened their own such ventures.

[SmartCat]

Originally Posted by PrideRed

The issue I mentioned was in a small town. Other problem with smaller town is volumes, any dealership to be profitable needs more footfall. Yes the operating costs are less but then margins are also lesser. You can make good profit as you mentioned but things are getting difficult day by day.

I guess small town customers are a lot more price sensitive when it comes to service bills. If you add stuff like -

Brake cleaning - Rs. 800
Door anti rust treatment - Rs. 1,500
Wheel alignment & balancing - Rs. 1,200

to the final bill, the service advisor would probably be beaten up.

[sandeepmohan]

Originally Posted by blackwasp

Once you find a competent service guy, its hard to go elsewhere, buying a new car is a one time interaction, but service is the key.

Very true.

This is a bit at odds. That Fiat workshop will have to close down soon if they do not entertain Jeep. The latter sells 20x more vehicles than all Fiat products. Unless offcourse, it is dealer insecurity that the Fiat outlet will grab more customers owing to better mechanics. FCA should step in here as Jeep is their bread and butter today.

Originally Posted by blackwasp

It's always better to open a FNG ~multicar garage with paint booth and stuff for car maintenance post the warranty period.

The developed world pretty much operates this way. The only difference, and I find this bit a little weird, is in most cases, if you have major electrical or body work to be carried out, you have to take your car to a person who is dedicated to those two specific tasks. I have yet to find a garage that does everything under one roof. A general service and any major mechanical repairs are done but not body and electrical repair.

When my Subaru developed a hvac snag, I had to take the car to an electrician. The climate control air direction controls went dead. The usual car service place could not help me.

Sounds like a business I should get into :-). Provide all services under one roof.

[qr20de]

@smartcat: thank you so much for this very insightful article!

its great to know the actual numbers behind these assumptions and how things are in the real world!

[pranavGTI]

Originally Posted by sandeepmohan

if you have major electrical or body work to be carried out, you have to take your car to a person who is dedicated to those two specific tasks. I have yet to find a garage that does everything under one roof. A general service and any major mechanical repairs are done but not body and electrical repair.

When my Subaru developed a hvac snag, I had to take the car to an electrician. The climate control air direction controls went dead. The usual car service place could not help me.

Sounds like a business I should get into :-). Provide all services under one roof.

I like your idea of venturing into A.S.S. I understand the complexities in handling electrical issues mainly harness related. As I work in manufacturing industry I regularly get to see the warranty claims. Majority of the claims have complaints of mechanical issues with error codes in MIS. When a root cause analysis is done the culprit would be sensors, wiring harness, VCU/ECU & electrical switches. Most of the rest would be hydraulic issues. 7 or 8 out of 100 issues would be the mechanical alone.

[su1978]

Staying in Delhi/NCR has its own advantages for a car lover. I can carry little money in my pocket and go shopping especially for car accessories from the biggest accessory market-Karol Bagh. The Margins that the local accessory shop guy earns is huge- yes literally Huge. I will list down some prices which can be Jaw Dropping for Some members. I will Take into account the accessory list for one of the best selling cars from Maruti Stable-Wagon R.

1. Door Visors- 300Rs
2. Door Sill Plates- 100 Rs
3. Seat Covers(Fabric premium quality-as per own choice-Get it stitched in front of you. Colour as per your choice)-2100 Rs
4. Foot Mats- 400 Rs
5. Stereo-Single Din-JVC/Kenwood- 4000 Rs
6. Speakers 6" Sony (4 nos)- 3000 Rs
7. Mud Flaps - 100 Rs
8. Car Perfume - 50 Rs
9. Rear Spoiler- 1500 Rs
10. Chrome cover for door flaps -100 Rs
11. Led Strips -80 Rs
12. Fog Lamps- Normal - 400 Rs
13. Alloys (Star design)-VRS make - 10000 Rs
14. Front Fog Lamps- LED Type All-extreme make- 1000 Rs
15. Bumper corner protector- 200 Rs
16. Body cover- 300 Rs
17. Side Molding- 300 Rs
18. Wheel covers-200-400 Rs
19. Door Guards- 100 rs
20. Chrome beading to wrap around all doors(5 meters)- 100 rs
21. Steering Cover(good quality)- 75 Rs, (lower quality)-50 Rs
22. Magnetic Curtains- 400 Rs

And i bet that once u reach the dealership and ask them for the accessories price, they add minimum 40% margin over items costing more than 1000 and 300% margin over items costing less than 1000.
I remember that when i inquired about the price of seat covers for My Honda Mobilio, dealer quoted me 10000 rs. Went to KarolBagh and got seat cover for 3200 Rs.
Just 5 Lakhs in your pocket and a little advertising and locality where you set-up a shop could help you earn handsome money at the end of day.

[airbender]

I see a lot of comments about why a car dealership will not be lucrative from a present financial point of view. But what about the future? With car sharing services like uber, a car will be considered a commodity in the future. Percentage of people owning a car for personal transport will keep falling. Uber like services will have wholesale contracts and will pay much less per car than private owner. If its already bad owning a car dealership, it will only get worse.

[autobahnjpr]

I guess car dealership is a risky business and car dealers are most of the time at mercy of the car companies. They are pushed to buy more inventory, keep some low selling models,agree to continuously changing terms and conditions, sign non-compete agreements, invest in customer care etc etc.
However, I think wheel alignment and balancing looks a lucrative business. With healthy growth rates and more cars on the road, there is always demand for their services. And people are sticky to these services because they do not normally trust anyone with these kind of services.

[53BHP]

Smartcat,

Thats an amazing analysis and answers a lot of questions that I have had in my mind for a long time. I have always wondered if the sales side ever made any money. I know that with my time at a large air-conditioning projects company in the mid 90's that maximum profits came from the service division. We took on projects at little or no margin so that the service department made us money on AMC and service work

I also know that several prominent service setups especially the german car dealers give specific monthly targets to their service advisors and they have to achieve the same no matter what

It is overall a very tough business which is proven by the fact that a handful of entities run most of the dealerships under various names

Great investigative reporting once again

R