If you go to buy a car or bike, you select the vehicle, haggle (if a wife is along) with the dealer on the price, buy and then leave. However, this thought must have definitely crossed your mind. How much did this dealer earn on this car sale? A middle-class mind will definitely chew on this for a few days while the ultra-rich either knew this well or doesn’t really care. A recent document which we got, shows the dealer margins that every showroom gets. Moreover, the Federation of Automobile Dealers Association (FADA) is now pushing for an even better margin. The dealers’ body says that this isn’t a ploy to get more money but is for the survival of many-a-dealer principals. The Coronavirus pandemic and the ensuing BS4 vehicle stocks meant that dealers certainly lost a lot of money. Many of the smaller dealerships had to pack up as well. Hence, dealers need the extra cash flow to survive this phase and continue employing people. However, before getting into how much more FADA is asking from car/bike makers, let’s take a look at what is the norm in other countries and how much our dealers are currently earning.
A study done by FADA suggests that four-wheeler dealers earn less than six per cent commission on the sale of a vehicle. This is painfully true if you see the table below on how the higher selling mass-market products have a much lesser margin. If you thought the numbers will be a bit different for luxury car dealerships, it’s very much the same instead. BMW seems to be the most benevolent when it comes to margins, while others are a bit behind.
In the case of two-wheelers, Bajaj Auto seems to be the least paying one while Vespa has the highest margin. In terms of luxury brands, Harley-Davidson India is the only one going into double digits. For commercial vehicles, the margins seem to be really low – never crossing 5 per cent.
In comparison to this, FADA says that dealers in the US get 8-10 per cent, UK – 6-8, Russia – 12-14, Gulf – 12.14, China – 9-10, South Africa – 12-14 and other parts of Europe – 13-14 per cent. These numbers on average are significantly higher than what Indian dealers get. It might be irksome to know that the geographies of these markets are much smaller, apart from China, than India. Based upon this, FADA has requested automobile manufacturers here to give better margins to their dealers. The standardised rate that is being put forth is 7 per cent. FADA says that few vehicle manufacturers have indeed heard their pleas and are in discussion with senior dealer principals.
It may be noted that there is no mention of the electric two-wheeler makers and their commissions. However, a few days ago, Okinawa Autotech sent out a release that said that the company is increasing dealer commission. The existing dealer commission for Okinawa dealerships was eight per cent and the company has now increased it to 11 per cent. This will certainly be a shot in the arm for many-a-Okinawa dealer.
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Do you think FADA is right in asking for a hike in dealer commission? Will this help dealerships survive through this difficult phase? Do let us know on our Facebook and Twitter handles and in comments here.