Vehicle makers prop up dealers in a slowdown

Maruti, Hero MotoCorp increase dealer margins on select models

Even as they were battered by the slump in new vehicle demand, dealers of two of the country’s biggest car and two-wheeler makers have something to cheer about. India’s largest car maker Maruti Suzuki and Hero MotoCorp, the country’s biggest two-wheeler maker, have raised dealer margins on a number of models to compensate for the poor market demand and also to keep them interested in their brands.

While Maruti Suzuki increased dealer margins from four-five per cent to 16 per cent, depending on models, Hero MotoCorp raised these  by Rs 100-500 a bike. Typically, the margins range from three to five per cent on the cost of the vehicle.

Mayank Pareek, chief operating officer (marketing and sales) at Maruti Suzuki India, said: “We raised dealer margin on select products in the range of four-five per cent to 16 per cent. The growth in auto sales in the last two years has been flat. But the cost for dealers such as rent, salaries and overheads have risen.”

New passenger vehicle sales have dipped by nearly five per cent in the eight months ended October to 1.44 million units, compared with 1.51 million units sold in the year-ago period, according to data by the Society of Indian Automobile Manufacturers.

According to a Mahindra & Mahindra’s earning presentation, cars have posted the lowest growth in the quarter ended September in three quarters; its was the lowest for utility vehicles in a year.  “The inventory holding has also gone up from two weeks earlier to four-five weeks now. We consider the dealers as partners and we need to share the pain and stress together. We raised the margins to ease some of the pressure from the dealers,” added Pareek.

For the past several quarters, manufacturers and dealers have been forced to sacrifice margins to make discounts more attractive. Direct cash discounts, complimentary accessories, finance tie-ups with banks offering special rates, and other freebies have been doled out to entice buyers.

Despite these efforts, there has been little recovery in demand, which is mainly sustained by a handful of new models such as Ford EcoSport, Honda Amaze, Renault Duster, Maruti Ertiga and the Hyundai Grand i10. The two-wheeler industry, though, has been lucky. With a growth of nearly six per cent, backed by continued demand from the rural segment, two-wheeler manufacturers have been spared of a free-fall.

Delhi-based Hero MotoCorp offers its dealers an additional margin of Rs 500 on premium-but-slow-moving models such as Extreme, Hunk, Achiever, Impulse and Karizma. On the other hand, a margin hike of Rs 100 is given on volume-generating Splendor Pro, Passion Pro and Passion X Pro. Scooter margins, too, have been raised by Rs 250.

“You are aware there has been a constant rise in our input costs on account of the depreciating rupee and also the rising power and logistics costs. Accordingly, we have revised our prices effective October 3. We know that your costs has also been rising. So, I am pleased to inform you that we are also increasing your margin on several models (not all models) from Rs 100 going up to Rs 500,” said a mail from Anil Dua, senior vice-president (sales) at Hero MotoCorp, to the company’s dealers.

A Hero MotoCorp spokesperson confirmed dealer margins had been increased, clarifying the increase was also effected in the context of the rising operating costs of dealers, especially in labour and transport, on account of the rising diesel prices.

Some cars makers believe the demand tide will turn in their favour by the first half of the next year. Their optimism is based on a consistent growth in enquiries.

Joginder Singh, president and managing director of Ford India, said: "There is a lot of pent-up demand in the market. This is evident from the consistent enquiry levels. The market should be able to pick up in the first half of 2014."