Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Automakers ask dealers to rationalize investments

  • Dealership cost structure can be simplified into real estate rentals, inventory costs, manpower and marketing cost
  • 'Real estate rentals need to be minimized. We need to bring down infrastructure costs barring new investments in workshops'

New Delhi: Automakers on Wednesday asked dealerships to rationalize investments to stay profitable.

Speaking on the sidelines of a conference of the Federation of Automobile Dealers Associations (Fada), Rajeev Chaba, president and managing director, MG Motor India said dealership cost structure can be simplified into real estate rentals, inventory costs, manpower and marketing costs.

“Real estate rentals need to be minimized. We need to bring down infrastructure costs barring new investments in workshops. Dealers also need to minimize costs related to vehicle inventory," Chaba said.

Anuj Kathuria, chief operating officer, Ashok Leyland Ltd said revenue streams of commercial vehicle dealers are different to those of car dealerships and so they must be very careful about their investments.

“We don’t want our dealers to have large setups because we know we operate in a cyclical industry. A slowdown comes every 3-4 years. We suggest our dealers to always be mindful while making investments," Kathuria said. Medium and heavy commercial vehicles (MHCVs), one of the most hit vehicle categories in the ongoing economic slowdown, account for about 70% of annual CV sales in India.

Highlighting the steps taken by MG Motor while appointing new dealerships as a new entrant in the highly competitive passenger car market, Chaba stressed on three key points that include focus on retail sales rather than wholesales, appointment of territory-exclusive dealers to avoid unnecessary competition and investment in manpower via upskilling.

“Our dealer viability mantra is very simple. We tell them to take care of customer satisfaction while we take care of their profitability," Chaba said.

Meanwhile, YS Guleria, senior vice president, sales and marketing, Honda Motorcycle & Scooters India said that “dealers must evaluate at what stage of their business they are in while making investments. This can be either creation of wealth, management of wealth or expansion of existing business."

Giving a banker’s perspective, Rajan Pental, senior group president and group head, branch and retail banking, Yes Bank said the business of dealer inventory funding started with vehicle manufacturers issuing specific comfort letters. “This practice eventually dissolved, as everyone wanted to ride the wave of growth. A bank can lose 10 crore to 100 crore in one dealer shutdown now," he said.

Rajan Wadhera, president, Society of Indian Automobile Manufacturers (Siam) warned that the road ahead for the rest of the year continues to look difficult due to the challenge of migration to Bharat Stage VI emission norms, which will bring about 10%-15% price hike across vehicle categories.

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