Car dealers commission a new study for better profit margins

Indian auto industry’s lagging growth rate and overall negative market perception has had a devastating effect on car dealers in the country. Economic slowdown, depreciation of the Indian Rupee, rising fuel prices and higher interest rates have all compounded problems for the hapless car dealer who is left with no other option than to negotiate with car manufacturers.

Car dealers commission a new study for better profit marginsA recent study conducted by J D Power has revealed that despite the fact that automakers such as Maruti Suzuki, VW and Tata Motors increasing margins and incentives to dealers, only 42% of these dealers are making profits. The viability to continue with this business now rests in the hands of auto manufacturers as dealers are pushing for better terms and conditions.

The slowdown in the auto industry is further augmented by higher rentals for showrooms and rising manpower costs which have tripled while interest rates have seen an increase of 300 basis points. Many auto dealers have shut down citing falling profits and lack of feasibility to continue functioning.

Federation of Automotive Dealers Association recently commissioned a new study with help from consultants Frost & Sullivan to conduct dealer viability in such a scenario. This study is called ‘Assessing Industry Best Practices will help both OEM’s and Dealers to Develop Business Viability’. It will bring into effect various practices to be undertaken by auto companies where passenger vehicle sales are concerned.

The study took into account 60 dealers in 6 cities and included dealers of leading auto majors such as Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Ford, GM, Volkswagen, Renault, Honda and Toyota. Several factors such as lower inventory levels, monthly reviews, improving dealer – manufacturer relation, and interest free credit were suggested to enhance viability for dealers.

V G Ramakrishnan, MD – Frost & Sullivan South Asia says while upturn in business cycle will positively impact on network profitability, structural changes have a long term impact on network viability, these solutions apart from helping dealers profitability will also benefit OEM’s in building committed business partners when growth returns”.

via Economic Times