New Delhi: The Indian car market has grown strongly, while the sales price per unit has more than doubled in the last ten years. The average sales price for a car in India has increased from approximately INR 5.05 lakh in 2011 to an estimated INR 13.3 lakh in FY21.
At the same time, the multiplicity of points of sale has reduced the sales volume per point of sale for most automobile manufacturers. By our rough estimates, there are approximately 8,800 points of sale for the country’s top 12 automobile manufacturers (points of sale include all types of sales touchpoints: large dealerships and expanded points of sale) and each of these points of sale average around 275 units and generate INR 30 crore in revenue per year .
Most OEMs have not increased the fixed sales margin offered to dealers in the past decade. Due to the high cost pressure, it has remained in the range of 2% to 4%. Rising real estate, labor and capital costs contributed to the problems. In many cases, over-dealerization and high investments in an extravagant infrastructure at dealerships have marginalized dealers.
Dealers have struggled to find ways and means to increase their profitability mainly through after-sales and service. Many times the services have been compromised and the vehicle owners have been left at the end of the situation. The opaque business models of some dealers and the redirection of funds to other businesses of a few dealers have exacerbated the problems for the automotive retail sector.
Most OEMs have not increased the fixed sales margin offered to dealers in the past decade. Due to the high cost pressure, it has remained in the range of 2 to 4%.~
The Federation of Automobile Dealers Association (FADA), the top body that represents dealers, has found that approximately 275 dealerships closed in FY20. Many shops were also closed in FY21, although the association still has to calculate the exact numbers.
FADA claims that traders’ debts rose to 20 to 40% in FY21. In most cases, the levels of debt are higher with the dealers who sell low-volume brands of cars.
In terms of sales per point of sale, Maruti Suzuki ranked third in the list with an average sales of 417 units, but in terms of sales per point of sale it was fifth as the annual sales per point of sale in 2021 were INR 29.5 billion . lay.
In terms of total sales per point of sale, the Korean duo Hyundai & Kia India occupied the top two positions with average sales revenue per point of sale of INR 106 billion and INR 55 billion, respectively.
Toyota Kirloskar, which topped the list in a 2018 ETAuto study, has slipped to third place in terms of average sales revenue per point of sale at INR 38 billion and average volume of 282 units – the fourth largest automaker by volume per point of sale.
It is generally shown that the older automakers, which are more strongly represented in smaller cities and in the countryside, will have lower capital and operating costs per point of sale than the newer brands of automobiles that have most of their outlets in large cities.
Now, after the pandemic, OEMs are more eager to adapt to change. The priority for automakers is to reduce inventory, work towards a just-in-time facility, drive digitization and build leaner and smaller points of sale.
“With the geographical spread of customer demand, smaller setups are becoming increasingly important. Over the years we have quietly built the smaller formats in line with global trends, ”says Shashank Srivastava, Executive Director, Sales & Marketing, Maruti Suzuki India.
The other focus area for Maruti Suzuki is leveraging technologies like digitization for customer convenience, changing mindsets – from vehicles to mobility service providers – as well as customer loyalty and cost control, including infrastructure costs.
Following Shashank, Naveen Soni, Senior Vice President Sales and Marketing at Toyota Kirloskar Motor, who is considered one of the most dealer-friendly automakers, says: I, II and III cities and towns will be the right way forward for us. Additionally, we believe that as the economy expanded into smaller markets and territories, it would lead to leaner and smaller dealerships. “
The smaller setup could at some point be the norm in smaller towns and expanded satellite towns, agrees Gaurav Gupta, COO, MG Motor India.
Most automakers, including Maruti Suzuki, have announced that they will be rethinking margins and streamlining the inventory push. Obviously, the digital push has increased enormously. Maruti Suzuki expanded its digital showroom from around 800 to 1200 last year and around 21% of sales were made through digital platforms.
According to FADA, the job losses at car dealerships in 2021 will be between 15% and 20% on an already low basis by 2020. Most car dealerships expect a decline of up to 50% due to the second wave of COVID-19. says FADA. According to FADA, after-sales and service revenues have declined by up to 7% in FY21 and have continued to decline since the outbreak of the pandemic.
Given the situation, ETAuto will be conducting a series on the auto trading strategy of the various automakers over the next two weeks. The series will also feature interviews with the leadership of automakers and their ranking based on the average sales revenue per point of sale.
The series intends to examine the following, along with some key data points from each automaker:
1. What is the focus for retail partners in a post-COVID world?
2. Will smaller setups become the norm in the future? What percentage of the outlets will be large, small, sub, and mobile outlets?
3. What is the total amount for 3S, sales only, parts only and service only?
4. What are the plans to expand the dealer network?
Note: All data are estimates based on information obtained from various sources and extrapolated from ETAuto research.
Point of sale: Point of sale refers to all types of points of sale / dealers / touchpoints from which cars have been sold.
Average Sales Revenue: This is based on the average sales price per unit multiplied by the total number of units sold in a year divided by the number of points of sale.
Average sales price per unit: This is an estimated price derived from the price range and the calculation made by ETAuto. It may differ slightly from the exact price.
Some of the automakers studied have electric cars too, but they are not sold in every point of sale across India as MG’s EV model is only sold in 31 cities.
Correction: Due to a typo, Ford’s sales per point of sale were calculated at INR 3 billion instead of INR 32 billion, which affected the accuracy of the ranking. The same has been changed. We deeply regret the inconvenience.
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