The country’s largest car maker Maruti Suzuki India Limited, with cars retailed via Arena and Nexa dealerships across India, could be setting up new showrooms at their own costs, reveals a new report from Live Mint. These showrooms will then be leased out to dealers who will then bear operational expenses.
This is being planned as the current dealership base may not have the finances to sustain large capital expenses due to rising real estate prices and other overhead expenses in Metro or Tier I cities across the country. Also, modern cars have higher service interval and require less maintenance, which in turn affects dealer profitability.
It takes about Rs 5-6 crores to open a new Maruti dealership in a Tier 1 city. Maruti Suzuki will build the showrooms at their own costs and then lease these out the dealerships who will then take on the operational expenses. In this way, Maruti Suzuki plans to tap its cash reserves of over Rs.30,000 crores, which will allow it to absorb bulk of capital costs for its dealer partners.
This step will benefit the dealerships and help in increasing their profitability while Maruti Suzuki will acquire prime real estate. Maruti also plans to built regional offices, just like their headquarter in Delhi. They will also buy real estate, which will be used by dealer partners as stockyard.
Along with the decision to set up its own showrooms, Maruti Suzuki also plans to increase the number of dealerships; as a study conducted revealed the urgent need for 100 new dealer partners. This will allow the company to retain its 50 percent market share by 2030. Though this decision has not been confirmed by the company, taking sustainability and profitability in the future into account, the decision to set up and finance new dealerships would go a long way in cementing the position of Maruti Suzuki at the top.
Maruti Suzuki has been noting subdued sales over the past few months, which have caused the country’s largest automaker to cut vehicle production by around 21 percent across all factories last month.
