Car dealers explore possibilities to sustain in the Industry

Witnessing decline in margins and a recent slowdown in the car industry in India, various car dealers have started diverting their resources into different businesses like leasing cars, operating driving schools, cab or taxi services and even providing insurance services to widen their source of income. These allied businesses have given a boost to their main business of sale and service of cars. Not only the individual unorganized car dealers but almost all major car makers including Maruti, Tata, Mahindra to name a few have also ventured into allied business in the recent past.   

As per a report, passenger car sales expanded by 30% in 2010-2011. But in June this year there was a growth of only 1.6% because of hike in interest rates and fuel costs. The Society of Indian Automobile Manufacturers (SIAM) reportedly predicted a 10-12 percent growth this year, a dip from 16-18% last year indicating not-so-good immediate future for car Industry in India.    

The reason behind this shift could be the decrease in sale of cars in volume due to increase in number of dealerships. Car dealers have a gross margin of 3-5% on the sale of a new cars, 20-30% on the sale of spare parts and above 50% on the other repairing and servicing utilities which are also expected to get lower in future, said sources. Also, nearly 700 new sales outlets are expected to be added in the next two to four years which will though increase the volume of sales of new cars but will heavily impact the individual margin of car dealers. It is expected that due to the increase in number of outlets the average number of unit sales per outlets will further dip. The average sales per outlet in a year rolled down to about 1,215 units in 2011 from about 1,405 units in 2006.    

This is the reason why car dealers have ventured into new car related business in order to add more volumes to their sales and keep the overall turnover and margins intact.     

Some have explored an opportunity to sell spare parts, provide with maintenance and servicing facilities and also sell insurance. Besides, many dealers including many Maruti dealers have setup driving schools for future car buyers. This also led to explore the benefit of 40% of sales through referrals while attracting new buyers to showrooms.

Some on the other hand have launched radio taxi services and get an advantage as they can utilize their own workshops for servicing and maintenance of the taxi cars. Meanwhile, others have initiated undergraduate course to train technicians as well as personnel to work at car dealerships. In this way they can get a highly skilled manpower which they are presently unable to find even after though they pay good emoluments to their staff.