As demand for cars decreases, dealers demand higher profit margins from auto makers

Saturday 07 September 2013, 12:20 PM by

With the declining demand for cars in India, the dealers of various auto manufacturers are demanding higher margins from their respective companies. According to them, the high interest rates, labour costs and decreasing sales have squeezed the profit margins, which is further making it hard to operate their business.

As told by Federation of Automobile Dealers Associations (FADA), the average margin on sales at present is 2.5 per cent whereas the dealers want this figure further go up till 5 per cent. Commenting on this issue, President Mohan Himatsingka said “The average margin now is pretty bad considering the market situation. Manufacturers should think about increasing it up to five per cent. The dissatisfaction among the members has increased a lot.” He further referred to a recent survey in which it was found out that nearly 56 per cent dealers are bearing with losses in the trade and most of them are considering to shut their business. “In other parts of the globe, the profit margin hovers around 15 to 20 per cent, but this is very low in India if compared to that figure” said Himatsingka.

While talking to Prem Bagga, owner of the dealership chain Bagga Links expressed his discontent with manufacturers and advocated for the cause of dealers by saying that car makers should increase profit margins so as make this business viable in the long run. He further added “Our costs are increasing. Dealers in big cities are having huge pressure of increased rentals of showrooms, and the labour cost is also on the higher side.”

It must be noted that Tata Motors is the sole auto maker, which has increased the margin by 4 per cent on passenger cars while it has restrained from hiking the margins for its commercial vehicle dealers. Himatsingka also told that the dealers based in urban cities are not expecting sales to further go up during the upcoming festive season owing to the negative consumer sentiment. On the other hand, the car manufacturers are saying that due to the challenging market conditions prevalent in the Indian car market, they too are facing a hard time coping up with the mounting expenditures.

In the meanwhile, the car sales in India are on the down turn since nine consecutive months. During the month of July, car companies sold 131,163 cars in India registering a decline of 7.4 per cent as compared to last year. The rising fuel costs and increasing interest rates have kept the demand subdued in India for the past two years.

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