[astrodex]

I had a very strange experience car buying experience that had me question how much money does a dealer make when they sell insurance?

I had booked a Gloster (Sharp 7 Seat Variant) in October 2020 and was promised delivery by early December. Since it was a new car, they were not offering any discounts. During booking, I was clear to mention that it was going to be a company booking and the quotation etc was all made in the company name with additional road tax. I had approached my bank for loan and they offered me an attractive rate, provided I take the bank's insurance. Since it was coming to be cheaper than what the dealership offered, I agreed and didn't think much about it.

Come December and the dealership they could not get the car yet, they offered me a Savvy 6 Seater in a different color that was readily available. Since I wanted a new car for my upcoming drive, I agreed to pay full price. They sent me the updated quote and I got the bank loan amount updated. Everything was good and I went there to do the paperwork and then things went awry. The moment I told them that I was doing insurance and financing from HDFC (which I had told the sales guy before, but apparently the sales manager did not know) there was a perceptible change in their demeanor and they kept requesting me to take their insurance.

Long story short, they finally asked for another Rs 5000/- additional in cash for RTO and when I refused, they said their management could not approve the sale. It all felt surreal that these guys didn't want to sell a car, since I really didn't initially think too much about insurance. Anyway, I walked away from the deal and even put in a request to refund my money.

I still can't believe they would cancel something a 44 lakh car sale for Rs 5000/- I would actually have paid that but it felt that they would come up with another roadblock since they never felt they wanted to sell the car at that point. I thought they never had the car in stock, but I had confirmation later that they indeed had it in their yard. So I was wondering how much money do these guys make for insurance (and/or financing). And why would they deny a car sale just because of it. It is also a marketing loss, since I as a customer is put off on the MG brand now.


Any ideas how much the insurance gets them? Is such experiences common?

[Vijin]

That is indeed strange! One of my trusted SAs told me once that dealers get around 33% of the insurance amount they charge a customer (irrespective of the insurance company). However, the profit from selling a car should be way too bigger. Probably, they are confident that the car will anyway sell, so why not sell only at maximum profit.

[libranof1987]

This is far too common, and gets worse if the model is high-moving. For an upcoming bike purchase, the dealer has told me that Insurance has to be in-house; they will gladly let the booking go if the condition isn't met. Given that the model has quite some order backlog already, the lost sale isn't a big deal for them.

If they can't let the booking go, they'll threaten that claiming insurance, if not bought from them, will not be cashless. Long back when I'd complained about this to Ford, a Ford official told me informally that they allow the dealers to do this as it's a high margin area and "dealer ko bhi to kuch milna chahiye" = "the dealer should also have some avenues to earn".

Do name the dealer here and drop in a complaint to MG; I think the dealer should have played middle ground and matched the quote.

[Turbanator]

Originally Posted by astrodex

I walked away from the deal and even put in a request to refund my money.

I still can't believe they would cancel something a 44 lakh car sale for Rs 5000/- since I as a customer is put off on the MG brand now.


Any ideas how much the insurance gets them? Is such experiences common?

Had similar experience with Kia Gurgaon dealership. My colleague had booked Seltos and asked me to have a check before giving a go-ahead for registration. Even though everything was ready, the manager refused to release the vehicle unless we buy an insurance from them. His sales advisor tried to reason that he has already got an extended warranty from us so he should be ok, but that manager was sort of egoistic guy.

I later tried to find the reasons, margins on insurance/ extended warranties and the handling charges go to the staff as incentives so they get upset, especially if the models are fast movers like Seltos. Just like you, we could have bought the car, but Kia has lost me as a customer forever. Not that it's going to make any difference to the numbers of Kia.

[saikarthik]

Same story here. I was waiting to post once I get my car delivered, but the thread is already here.

My booking is also a corporate one, so the company had cut a deal with a bank and insurance company already and almost being 55% cheaper than what dealer could offer. The car had arrived dealership on 19th Jan, and in my case the insurance company delayed almost a week to issue policy (apparently they weren't too happy with their margin either). Registration is done a last week, but dealer is pushing the delivery by 2 days everytime I call him. They throw reasons unknown at me! They were insisting me to purchase additional accessories or they can't release car. I rejected but had to pay ₹2800/- for the accessories (essentials though). Still waiting for the car to be delivered .

[speedmiester]

The dealer's margin is quite high for insurance, it should be around 30-35% of the insurance amount.
In this case, the dealer margin for insurance on Gloster will be around 50K which is quite a large sum for the dealer
This is one of the reasons most dealers insist on their own insurance and which is usually inflated. For quick selling models, dealers are relying on unsuspecting customers who will fall for this trap rather than convince a reluctant customer. For other models, they are ok with matching the pricing from the market so they get their margins even if it is lower.

Recently my friend's uncle bought a new Ford Endeavour. The dealer insisted on their own insurance priced at 1.8L while outside the same insurance was available for 85K. When I got involved in the negotiation, the dealer finally budged to price match the insurance value.

As a customer you are well within your rights to buy your insurance from anywhere you want. Do involve the manufacturer if the dealer does not give in.

[giri1.8]

Margins are so fat, most showrooms have a separate dedicated for Insurance sales alone. It's an easy way too make money too, no headaches of inventory management or huge investment.

[tp_dominator]

You will be surprised to know how much money does a dealer make on every insurance sold. And even more surprised if I tell you how much commission does a two wheeler dealer have on every insurance policy sold by them. The problem here lies in the manufacturer themselves being involved in the insurance business.

MG has their own insurance tied up through Aditya Birla Insurance Broker, Kia has it with SMC Broker, Hyundai again with Aditya Birla and Maruti has their own broking house, Maruti Insurance Broking. Apart from the dealer making commissions on the insurance, the manufacturer, through the broker, indirectly makes a commission too upon the promise of better insurance service, added benefits while claims and long list of add on insurance covers. The dealers are given targets of insurance penetration by these OEMs which is typically set at 90-95% for in-house insurance, which is then tied up with their sales incentives based on achieving this penetration target.

Taking the case of Gloster here, the dealer might be selling say 5 cars for the month and even if there is one customer who doesn't buy the insurance from them, their insurance penetration would fall to 80% making them ineligible for car sales incentives. This is like a chain, dealer makes the money from insurance, sales incentives and finance and then has to pay their staff their salaries and also incentives to the sales teams and other teams. If the amount involved per car is huge, like in the case here, financial prudence would be to let go of that customer and strike a deal with another one who agrees to the dealers' terms unconditionally. I, for a fact, know that Kia and MG have been pushing dealers very hard on selling the insurance offered by them, since they would want to earn that commission(albeit little) too.

Moreover, when the insurers are paying such hefty sums to the dealers and OEMs through brokers, they would also want to underwrite the maximum business possible to cover their losses since there are always a little number of tied up insurers with a particular brand. So, the stakeholders here are many and letting go a customer seems a better proposition for them. If you ask here the sales margin on every car, I can assure you, a dealer in a Tier I city can absolutely never survive on that alone. Heck, even two wheeler sales margins aren't enough to cover the dealer's fixed costs and it is this supplementary income which helps them stay afloat.

Most banks while approving car loans try to push the insurance through them since the loan officer and in turn, the branch manager, also receive a nice incentive on any cross-sold product. HDFC being most notorious here since I suppose they have the highest cross selling target in the industry. Also, by this time, you would understand that the dealers earn through in-house finance too and many times their tied-up finance house would be offering better terms than what is available in the market, except in the case of corporate customers such as you who already have a healthy relationship with a bank.

PS:- Finance commissions are way more than insurance's and tied up to the disbursed loan amount which for an expensive car such as yours, would be in lakhs!

[V.Narayan]

Sorry to hear of the sad experience the OP had and the inconvenience and disappointment caused to him. Clearly there are pieces of data we don't have on how dealers make their profit.

I'll put down a perspective which I'm sure most members will not like or agree with.

Every business be it selling cars or repairing aircraft or manufacturing an engineering product earn through multiple channels that together make up the profit margin. I doubt car dealerships have massive margins - at best a middle single digit percentage at the profit after tax line and that too with significant capital blocked in inventory of cars and spares. So it isn't exactly as if this is a super lucrative business.

In one of my erstwhile businesses we used to paint aircraft - the big airliners - and do all sorts of corrosion protection work. A pretty low down business from a technical point of view. We used to insist that (i) we supply the materials, and (ii) we do the post job testing {of the aircraft} because that is where our margins lay. The margin was not in the labour. And even then these were slender margins. The only reason to run this business was that it rounded up our bouquet of services.

Same with our car dealerships. Unless they can earn their bit from each stream of service the collective profit does not add up to sustain a business. So while dealers are not always straight and ethical at least where the need to earn at every point goes I do empathize with them. The problem lies with the OEM not parting with larger margins. And why is that so - at least for some OEMs who do not have scale in India they themselves are trapped between customers who demand more features in a C segment than were available in a D segment only a decade ago on one side, high taxes on the other and a push for selling cars at lower real prices than just a generation back. A squeeze all around. Mass production engineering businesses are no longer profitable, in a healthy way, the way it was say 30 or 40 years ago. China has a lot to do with this being so. Even in an engineering business meaningful profits are only in the service portion.

Personally I always take the insurance through the dealer. Let the blighter earn his bit. In return insurance claims have always been a breeze. To each his own. What may work for one may not for another. Just one man's perspective.

[FrozeninTime]

Originally Posted by V.Narayan

In one of my erstwhile businesses we used to paint aircraft - the big airliners - and do all sorts of corrosion protection work. A pretty low down business from a technical point of view. We used to insist that (i) we supply the materials, and (ii) we do the post job testing {of the aircraft} because that is where our margins lay. The margin was not in the labour. And even then these were slender margins. The only reason to run this business was that it rounded up our bouquet of services.

.

.

Sorry to be blunt but isn't it unethical to force client use bundled services just so that you make extra money or shore up your bottom line?

We as a society have double standards on one hand we condone such practices by Business but if private hospitals does it we try to preach socialism, ethics. We can't have double standards just because hospital b deals with lives.

[V.Narayan]

Originally Posted by FrozeninTime

Sorry to be blunt but isn't it unethical to force client use bundled services just so that you make extra money or shore up your bottom line?

We as a society have double standards on one hand we condone such practices by Business but if private hospitals does it we try to preach socialism, ethics. We can't have double standards just because hospital b deals with lives.

Pray why would it be unethical in my business (which you quoted). I am not forcing the customer to buy my services and I am offering it only as a bundle for those willing to buy. If they want to dis-aggregate they can go to Happy-Joe next door and get it cheap and cheerful. But don't expect OEM standard quality and Happy- Joe's super low price all together. Why should I offer only one part of my service? I'm running a business not a charity. Let's say it is a hot summers day and you are out on the street. And there is an air conditioned restaurant across the road. You want to cool yourself - can you as a customer say I will sit in your restaurant and enjoy the air conditioning and order a glass of water knowing both are free but not order any food? Not sure where hospitals have turned up in this discussion.

[Cowardly Lion]

Car dealerships have shown total disregarded the law of the land when it came to "logistical charges".
So if law of the land is meaningless then expecting the same lot to be ethical in any other aspect of their business is expecting too much.
I also do not agree that if one were to purchase in house insurance the treatment one would get will someone be better. I have owner 2 Maruti vehicles- same dealer - 1st time w/in house insurance but not so the 2nd time around.
Their servicing was pretty secular - I was 'plucked' w/out any distinction. After all if the sales lot has their 'targets' why would anyone assume that the service lot might live in a benign parallel universe? They will have their own objectives too..

[dhanushs]

I’m sure the insurance commission goes to the staff and not to the dealership owner. Hence this blatant disregard. They are forfeiting not only the profit of the sale, but also of future services, and no dealer will be ready for that. But as far as the staff is concerned, he just needs to figure out his cut.

I’m sure if you talk to the Dealer Principle you can get things sorted out.

[ashis89]

Slightly off topic:

I had a funny experience yesterday. I was visiting a remote wildlife sanctuary with my friend. There's a small dam nearby and we thought of going there to enjoy the sunset. The place was mostly deserted with a few villagers doing their chores.

20 mins later, three cars arrived at the spot and 3-4 families got out at the same spot. After clicking few pics, two guys from that group come up to me.

Guy 1: Did you buy your car from XYZ dealer?
Me: Yes
Both smile and tell each other, it's their 'office'
Guy 1: Which insurance did you purchase?
Me: ABC company
Guy 2: Where did you purchase it from?
Me: From the dealer

Both looked happy!

Guy 2: Did you renew it from the dealer?
Me: No, I got it from outside

Then they walked away to join their families. I still don't have a clue what was that conversation

[Turbanator]

Originally Posted by V.Narayan

I doubt car dealerships have massive margins - at best a middle single digit percentage at the profit after tax line and that too with significant capital blocked in inventory of cars and spares. So it isn't exactly as if this is a super lucrative business.

Well, in case of OP and ours, MG & KIA dealerships are earning handsomely. They give Zero Discounts and will push for some accessories/ handling/ extended warranties besides the insurance & finance. So, a customer who will make full payment and get insurance on his own brings lower additional earning per car.

In your case, Sir, you are giving a combination of product & services, whereas it's a plain commodity sale with such brands. You can buy from one dealership and take to any other for service.

Both brands have tasted success in our market, which gets reflected in the dealership's behavior. You should once visit a neighborhood Kia showroom; it won't differ much from " Aggarwal sweets"

I always take the insurance through the dealer. Let the blighter earn his bit. In return insurance claims have always been a breeze.

I don't think claim processing has anything to do with who sold the insurance. It all ends up on the dealership who is coordinating for insurance claim and the insurance company itself.