[Turbanator]

The country's largest car maker Maruti Suzuki has set its eyes on the real estate sector. Flush with over Rs 9,000 crore fund, the company is planning to create a huge real estate bank by buying land across towns and cities that it aims to develop and lease out for dealerships

Source : http://epaperbeta.timesofindia.com/A...31102014026011

This looks a unique initiative , Can be a great opportunity for Young Entrepreneurs specially with limited funds . One of major costs in setting up / maintaining Dealership is indeed the real estate .

[mallumowgli]

Borrowing from the McDonald's business model, perhaps? One of the very successful business practices. Create a powerful brand, buy land, rent/lease out in the name of the brand, earn money sitting at home!!

[S2!!!]

Originally Posted by mallumowgli

Borrowing from the McDonald's business model, perhaps? One of the very successful business practices. Create a powerful brand, buy land, rent/lease out in the name of the brand, earn money sitting at home!!

So true, I vaguely remember this story when the founder of McDonalds was sitting with some management kids and he asked them what according to them was his real business. All unanimously answered - Burgers! He smiled and said "umm, it's actually real estate". I remember reading more about this topic during my post-graduation days but just can't seem to recall it right now.

[Sebring]

Car/Bike companies should have spectacular showrooms outside city limits, only One per city. consumers book an appointment via internet/phone and land up there.

Since it's a high involvement purchase one wouldn't mind going the distance. It also boosts the car brand value. In my opinion test drives in city limits with its high traffic, is absolute waste as you cant check the speed nor handling.

Just a theory!

[CrAzY dRiVeR]

Originally Posted by mallumowgli

Borrowing from the McDonald's business model, perhaps? One of the very successful business practices. Create a powerful brand, buy land, rent/lease out in the name of the brand, earn money sitting at home!!

Correct. The McD model!

However - I remember a dialogue from some McD top boss- 'We sell burgers because that is the best way to enable our tenants to pay us rent'.

The problem with that model is that their main business model is centred around real estate rather than the quality of their burgers. When was the last time you visited a McD store? I did so about an year ago!

I hope Maruti Suzuki sets it priorities right and doesn't get carried away by the huge revenues and solid cash reserves it will have by going into this business models. Without quality cars, soon the bubble will burst.

[scwagh]

Excerpt from the Livemint article:

As part of its network expansion strategy, the company plans to buy land parcels, build dealerships and then lease them to selected dealers. Maruti Suzuki has already finalized 120 such land deals across the country in the first half of the current financial year.

“We have earmarked a budget of Rs 1,000 crore for the current fiscal. We plan to have around 1,500 new dealerships over the next three years,” Maruti Suzuki’s chief financial officer (CFO) Ajay Seth said. The trigger for the land purchase is increasing prices across the country, especially in high-potential belts, which impacted profitability of dealerships, he said.

In my view, this is a terrific move by Maruti Suzuki in order to augment their already well established network. The dealer principals would generally find it very difficult to sustain the dealership after purchasing the land parcels, taking a significant cost component out of their business consideration would ease the operations dramatically. No doubt Maruti would want a piece of cake from dealership profits but when the single largest cost is been taken care off, this might make a good business sense for dealer principals also.


Link to the article: http://www.livemint.com/Companies/1n...or-1500-d.html

https://auto.ndtv.com/news/maruti-su...fiscal-1768760


This strategy was first reported in December 2015: http://www.livemint.com/Companies/yN...-new-deal.html

[CrAzY dRiVeR]

Originally Posted by scwagh

In my view, this is a terrific move by Maruti Suzuki in order to augment their already well established network.

This is huge, as a silent entry by the company into the real estate space. Very similar to the McDonald's model due to which many people refer to them as a real estate company rather than a food chain.

So Maruti will be purchasing 120 such spaces initially, which are in the areas having high real estate value and then leasing these areas out for profit. And what's the best way to enable their tenants to pay for the land costs? By running a profitable Maruti Suzuki dealership of course - the lease amounts and the profits in part from the operations again circulating back to Maruti.

Looks like Maruti is looking at ways to expand beyond the boundaries of an automobile manufacturer. They've entered the engine oil and coolants space as well recently, along with a partnership to get into manufacturing of batteries for future EV ventures.

The focus seems to be in recirculating the profits of the business back to the company. Good model indeed.

[scwagh]

Originally Posted by CrAzY dRiVeR

This is huge, as a silent entry by the company into the real estate space. Very similar to the McDonald's model due to which many people refer to them as a real estate company rather than a food chain.
.

Absolutely true. As the report states, initially Maruti would offer these spaces to existing dealers. But with time they might start offering it to people who are interested in running a dealership but don't have the initial capital to invest in a land parcel. This would open up the dealership business to a lot of interested people.

[HKap]

The McDonalds of cars is here!! Now, if only like McDonalds makes fast food, Maruti could make "fast cars" .

I mean speed and not cheap unhealthy/unwanted stuff that you tell your kids to stay away from .

[GTO]

Maruti is not 1 step ahead of its competitors...it's more like 5 steps!

While most car manufacturers are swimming hard just to stay afloat, here is a company thinking 5 - 10 years ahead . Real estate cost is a top reason why dealership profitability suffers (along with inventory financing costs). This way, Maruti can help its dealers. Also makes sense because:

1. Buy land properly and it'll only appreciate

2. Maruti can 'control' its dealers even more

3. Easy to replace a dealer who is running a showroom on your property

4. Dealer retention will improve. Maruti obviously won't allow a dealer on its own land to switch to Hyundai (as an example)

This is as close as a car company can come to running its own dealerships. In essence, the dealer principal is more of a 'branch manager' than an entrepreneur .

[himanshugoswami]

Maruti realised what Infosys and Wipro discovered long back. No matter what your primary line of business is, aint no biz like real estate biz in India.

[narayan]

Originally Posted by GTO

Maruti is not 1 step ahead of its competitors...it's more like 5 steps!

While most car manufacturers are swimming hard just to stay afloat, here is a company thinking 5 - 10 years ahead

I wouldn't put the entire credit on Maruti for this. As such, these kind of steps will bear fruit only at a certain scale. Only other car maker with a comparable scale is Hyundai and they might have other priorities or strategies.


On a related note - this clearly is a post demonetization effect.

After demonetization, land prices have fallen significantly. The auto dealership business has always been a front for many who are peddling in other "cash businesses". With significant erosion of wealth for these fellows, Maruti would have been worried on one side with regards to their cash flows and on other side must have thought of cashing in on low land prices.

[Karthik Chandra]

The biggest hurdle for an entrepreneur looking to set up a car dealership is real estate even if he has enough money. This step solves a major headache for the dealership.

MSIL business model was already attractive from revenue POV and now this only adds on the value proposition which would attract competition channel partners. This would not only help in retaining dealerships but also expand the network. I would not be surprised if MSIL crosses 2 lacs mark in monthly volumes which I think would happen for sure.

They are planning to have 1500 dealership, 150 units average per dealership would be 2.25 lacs monthly units. I predict MSIL to cross 2 lacs mark by 2020.

This was planned well before.

Related thread

http://www.team-bhp.com/forum/indian...structure.html

Originally Posted by narayan

I wouldn't put the entire credit on Maruti for this. As such, these kind of steps will bear fruit only at a certain scale. Only other car maker with a comparable scale is Hyundai and they might have other priorities or strategies.

MSIL's pro activeness and not being complacent is the reason for the large scale business. Isn't it?, hence it is only fair to credit MSIL.

Originally Posted by narayan

On a related note - this clearly is a post demonetization effect.

After demonetization, land prices have fallen significantly. The auto dealership business has always been a front for many who are peddling in other "cash businesses". With significant erosion of wealth for these fellows, Maruti would have been worried on one side with regards to their cash flows and on other side must have thought of cashing in on low land prices.

There is nothing that stops other manufacturers from thinking and planning for the future.

[SmartCat]

The most obvious question is - why lease it to dealers? Why not make these company owned and operated dealerships?

Dealership business has poor margins, return ratios and profitability (relatively speaking, compared to car manufacturing & selling) primarily because of high rentals. Take that out of the equation and you will have decent numbers.

[avdhesh15]

This is brilliant strategy, not to say a super corporate decision. Here is a company which has been ruling the industry since ages and just doesn't back down much to the disappointment of their competitors.

Control on showroom locations - check
Control on dealer attitude (esp to avoid VW like stories) - check
Increase in Fixed Assets - check
Revenue in terms of lease - check
... and so on!