Car dealers are pessimistic on profits

Only two out every five car dealers appeared hopeful of registering profits last year as mounting overheads, bleak sales and lack of any certain signs of a turnaround took their toll on operations.

According to a study by JD Power Asia Pacific, a marketing information services firm, only 42% of car and sports utility vehicle dealers estimate they will be profitable in 2013-2014 as against 62% in 2011-12.

Dealers rely on sales-related proceeds from new car sales, accessories, insurance and vehicle loans commissions for about half of their revenues. With last year passenger vehicle sales (2.5 million units) closing at the same level of 2010-11 and down 6% from 2012-13 (2.66 million units) a larger number of dealerships are set report losses.

"The situation is more critical for dealerships based in India's six largest cities, with only 31% expecting to make a profit in 2013-14", said the study. The study was based on responses from 658 dealer principals or dealership general managers located in more than 200 cities. The study was conducted in association with the Federation of Automobile Dealers Associations (FADA) and was fielded between February and March 2014.

To push for greater incentives dealers had to compromise on their commissions which usually is the region of 3-4%. "Discounts had reached an all-time high last year and yet there were not enough sales. Costs of real estate, salaries and other overheads skyrocketed punching a hole in our margins", said Mohan Himatsingka, owner of Maurya Motors in Patna.

The other significant area of revenue generation for dealers is vehicle servicing. Car owers, however, prefer to service their vehicle at unauthorised centers to save on hefty bills on spares and servicing if the vehicle has crossed the warranty period, claim dealers.

Established dealers decided to conserve cash and hold back their expansion plans. In certain cases auto makers helped fund setting up new outlets or refurbish existing ones. Tata Motors for instance, financed setting up new dealerships and refurbish/upgrade existing ones under their network to support their upcoming launches.

John Paul, managing director, Popular Vehicles & Services, a major dealer for Maruti Suzuki in the south of the country, said, "Sales happened only because of a handful of outstanding models. Buyer sentiments for other regular models remained poor. Discounts ate into profits of every auto dealer in the country".

Retaining customers beyond the standard warranty period has always been a challenge for dealerships in India. With sales revenues under pressure, focusing on their service business is essential not only for enhancing dealer viability, but also ensuring survival, added the study. It also found that 19 percent of dealers perceive that their automaker does not have a range of vehicles to compete effectively in the market.

While Japanese car maker Toyota topped the 'Dealer Satisfaction Index Ranking' conducted by J D Power with a score 925 on a point scale of 1000, market leader Maruti Suzuki came close second with 884 points followed by Honda with 869 points.

Mumbai-based Mahindra & Mahindra and Tata Motors (756 points) managed to fare better only than Nissan (693 points) which came last in the list. The industry average stood at 827 points.

The silver lining however that automakers were increasingly helping dealers fund their spare parts inventories. Nearly half of dealers indicated their warranty claims are settled within 15 days, compared with 42%in 2012-13.