[Venkatesh]

The Federation of Automobile Dealers Associations (FADA) has recently requested for an upward revision of the fixed dealer margin on vehicles to 7% of the selling price. The dealers' association says that it has sent out multiple communications to Society of Indian Automobile Manufacturers (SIAM), who on their part have conveyed the same to all manufacturers.

FADA President, Ashish Kale said, Remember, this time it is not the question of profits, but is a question of our survival together we have to make sure that we survive through this crisis and beyond the crisis, build up sustenance to absorb any future disruptions.


The current dealer margin for a passenger car is 2.9 to 5.68% on cars in the ₹ 4 lakh to ₹ 6 lakh range


Luxury carmaker Mercedes Benz offers 4.56 to 6.75% dealer margin


The dealer margin is much higher for luxury motorcycle brands like Harley-Davidson at 11.43 - 14.55%.

Nikunj Sanghi, Managing Director, JS Four Wheels said, It's a very right step, and it was long overdue. Without the revision of dealer margins, it will be very difficult for dealers to survive.

https://www.carandbike.com/news/fada...-price-2240068

Mods please move it to appropriate thread

[click]

The role of a dealer has been diminishing in this age of internet. The buyer's are slowly but steadily becoming more and more informed about their choices and requirements through forums like team-bhp and online reviews, etc. Tesla (because of the regulations) had to completely forego the dealer network... I genuinely think, we don't need dealers. Rather built a more robust network of service and support systems. It will reduce the price point to end user and increase margin for mfr.

Business model of selling via dealers is long overdue a disruption.

[GTO]

And I want to go back in time to buy Apple shares before the iPhone's release. Dream on, FADA! Be very happy with the 4 - 5% you currently make, all the ancillary income (finance, insurance), repeat servicing business & upselling (accessories, "engine coating", "air con disinfectant").

[2000rpm]

Originally Posted by GTO

Dream on, FADA! Be very happy with the 4 - 5% you currently make, all the ancillary income (finance, insurance), repeat servicing business & upselling (accessories, "engine coating", "air con disinfectant").

Also, auto business is a turnover game, not a margin one. If dealers are under the impression of anything else, they are smoking the "Elon Muska" (#JoeRogan)



But we also need to understand that the OEMs have been putting immense pressure on the Dealers to make high investment showrooms like the Nexa ones. The dealership set-up cost is in crores right now, excluding the real estate.

Also the dealer margin is supposed to provide all costs of the dealership.

Most dealerships try to break even through service only, anything from sales is the profit, they are trying to build a buffer here due to the corona scare. Unlikely that the OEMs will agree.

[Tapish]

Originally Posted by 2000rpm

Most dealerships try to break even through service only, anything from sales is the profit, they are trying to build a buffer here due to the corona scare. Unlikely that the OEMs will agree.

The aim of this 7% is not 7%, the aim is to extract other concessions on the spares, service and other income streams throughout the life cycle of the vehicle ownership.

Regarding dealerships in general, with most people having an online delivery during this crisis, maybe a time will come when we can buy the car straight from the manufacturer with the feature list we want, like in other countries.

Tapish

[wheelguy]

New car margins internationally are at 10-12% & interest cost in these countries is at 1%-3%; whereas in India our margins are at 2.75%-5% & interest cost is at 9%-11%.

Just before the days of Covid19– The Profit after Tax (PAT) of a dealership had fallen to -0.50-1% of the total turnover, which was a result of Total incomes from sales, service, other incomes & spares which was between 9-11% & the expenses were between 8% to 10% depending on location & turnover. Which means that we did not even have a cushion to survive for 25 days without running operations or even handle 3 months of slowdown of 50%.

Source: AutoPunditz

[SmartCat]

If manufacturers don't want to raise margins, they can help dealers by not forcing them to keep inventory. Since manufacturers will generally have a better balance sheet and access to cheaper capital (bank loans) compared to small-time dealers, inventory should be held by the manufacturers.

That will free up dealers' working capital for sales and promotion.

[Turbanator]

There are a lot of Holdbacks in the way of Yearly incentives and Direct sales incentives to Dealership staff, as high as 40-50% of the salary of sales persons. This is true for most German/ luxury brands.

Dealerships will have to get leaner as manufacturers are also under pressure. People will be driving less so their service/ repair income will also get affected.

Originally Posted by SmartCat

inventory should be held by the manufacturers.

That will free up dealers' working capital for sales and promotion.

Easier on paper, difficult to handle. Manufacturers are always under pressure to produce what sell quickly, if they hold inventories for the finished products, their complete cycle will go for a toss. They can instead pass more flexible payment conditions to qualifying dealers. This may work or already happens in Luxury segment, where you can order a particular colour or interior from the factory or production. But mostly manufacturers take a hit. Like the crazy year end discounts that we see from BMW. The cars which were produced or imported but sitting in the factory.

[kovilkalai]

Originally Posted by SmartCat

If manufacturers don't want to raise margins, they can help dealers by not forcing them to keep inventory. Since manufacturers will generally have a better balance sheet and access to cheaper capital (bank loans) compared to small-time dealers, inventory should be held by the manufacturers.

That will free up dealers' working capital for sales and promotion.

As SmartCat points out, the value that a dealer adds goes beyond operating a showroom, facilitating test drives etc. Auto companies are infamous for pushing inventory to dealers. 7% is a decent margin to cover for capital locked up in slow-moving inventory.

Let us consider the alternative. Volumes go down + margin stays the same + generally more reliable cars + mushrooming third party servicing options. This will lead a bunch of dealers shutting shop. I understand that dealers are not necessary in the .com age, but the vast majority of Indians may disagree with you today. Also, the business model of service income subsidising sales may have a short shelf life. All it takes is some enterprising guy to build a chain of quick lube places in India.

The dealer margin does need to go up.

[spoth001]

Dealers should and will always remain in market. OEMs will never divert their investment towards setting up showrooms as it’s huge OPEX for them. Just not the right approach. Rather they will focus on increasing RnD budgets as that’s the heart and future !! Dealers will have to fight it out with the OEM for better margins as the latter make hefty margins on vehicles they build. Dealers will not want a dent in their pockets.