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Car dealers focus on allied businesses as margins fall

Car dealers focus on allied businesses as margins fall
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First Published: Mon, Jul 11 2011. 11 38 PM IST
Updated: Mon, Jul 11 2011. 11 38 PM IST
Mumbai: Car dealers, faced with thin margins, intense competition and slowing sales, are diversifying into allied businesses.
Dealers of various car makers in Mumbai, Delhi and Chennai say they have started leasing cars to companies, running driving schools and radio taxi services and selling insurance policies as alternative sources of income.
These businesses, they say, also help boost their core activities of selling cars and spare parts and servicing.
Passenger car sales in Asia’s third largest market, which expanded 30% in fiscal 2010-11, saw an almost flat growth of 1.6% in June because of rising interest rates and fuel costs. Lobby group Society of Indian Automobile Manufacturers (Siam) pared its sales growth outlook for the current fiscal to 10-12% from 16-18%.
For dealers, the gross margin is typically 3-5% on the sale of a new car, 20-30% on spare parts and more than 50% on services. Margins are expected to shrink in coming years.
Car makers will add as many as 700 new sales outlets in two to four years, said Kumar Kandsawamy, senior director at consulting firm Deloitte Touche Tohmatsu India Pvt Ltd. “Even as the overall volumes expand, profitability of individual outlets will come under strain, given the high investment and extremely low income from new car sales.”
In 2005-06, car maker Maruti Suzuki India Ltd sold 527,038 cars through 375 dealers. In 2010-11, it sold 1.1 million cars through 931 outlets. With the addition of new outlets, average sales per outlet in a year came down to 1,215 units in fiscal 2011 from 1,405 units in fiscal 2006.
“Dealers can no longer look at sales as the only source of earning money as the margins are shrinking and operating costs have gone up substantially,” said a Mumbai-based Maruti dealer, asking not to be named.
His firm, which earned Rs 250 crore by selling cars from two outlets in 2010-11, recently leased 200 cars to a public sector bank. Besides the monthly rental of Rs 2,500 per car, the business also allows him to sell additional spares, provide service and maintenance and sell insurance at a premium.
Encouraged by the response, he now wants to spin car leasing into a separate business segment. Several Maruti dealers in Mumbai, including the one mentioned above, plan to open franchises of the car maker’s driving school for prospective car buyers. Vitesse Pvt. Ltd, Maruti’s second biggest dealer in the city, is setting up a driving school, general manager Rahul Kale said.
He said 40% of sales are through referrals and a driving school will help attract more buyers to showrooms.
Gautam Motors, a Delhi-based Hyundai Motor India Ltd dealership, has started a radio taxi service. Rakesh Jain, its owner, said a fleet of 200 Accent cars will hit the roads in the national capital under the brand Win Cabs. They will have an edge over competition as they can use their own workshops for servicing, he said.
C.S. Harish, chairman at Sagar Automobiles, a Bangalore-based Maruti dealer, plans to start a three-year undergraduate course to train technicians and other personnel to work at car dealerships.
Dealerships are finding it difficult to get trained manpower and facing high attrition even after paying decent salaries, he said. “We want to create a central repository of talent.”
shally.s@livemint.com
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First Published: Mon, Jul 11 2011. 11 38 PM IST