Car discounts hit dealers

Mumbai: In June, traditionally a bad month for auto sales, car sales increased by 23 per cent. A sweet success story? Not at all, for many auto-dealers are downing the shutters thanks to non-viable operations.

The main problem with dealers is that there are too many of them in the arena and with each of them trying to eat a share of the pie, there is cut-throat competition. Manufacturers traditionally offer dealers a 2-3 per cent dealer discount per car, but the intense competition leads to them retain lower margins till operation viability gets affected.

The worst affected have been Maruti dealers (the company has the largest number of dealers) and some that have shut shop in the last few months. They include Amit Deep in Kanpur, Bhasin Auto in Delhi, ACC in Thrissur. Radhika Motors in Gwalior, VIP and Resham Motors in Mumbai and Fairdeal in Indore.

Other car dealers that have shut shop include Hyundai's dealer Rama in Delhi, Ford's dealers MGF in Delhi, Distinct in Indore and Wasan in Mumbai. Two prominent dealerships of Telco that have shut down include United Motors in Mumbai and Autosales in Varanasi.

Sources say a Toyota dealer, DSK in Pune, is about to close down while a Mahindra & Mahindra dealer, Silver Jubilee, is winding up business. Most dealers in any case operate on tiny margins, which this year hit an all-time low of Rs 5,000 per car for some car models in cities where there are more dealers.

Dealers say large car manufacturers require dealers to have spacious and impressive showrooms to give the right image to the vehicles sold and this entails high working capital, and achieving break-even on showroom operations becomes difficult.

For instance, luxury carmaker Daimlert Chrysler insists on dealers making investments of up to Rs 20 crore to be able to qualify for the dealership. However, for a low-end car, the cost of setting up a dealership will be around Rs 8-9 crore. But until the market reaches a critical mass, dealers have to turn to other revenue streams to keep going.