Auto manufacturers have decided to increase the commission of dealers, which initially was around 2.5 to 3 per cent of the total value of the vehicle. According to a source from Maruti Suzuki India, “The increase in commission will be in the range of 20-25 basis points starting Monday. It’s happening as volumes are low and operational costs like rentals are increasing”.
Vineet Hetamasaria, the head of research at PINC, a brokerage, said that seeing Maruti Suzuki even others are expected to follow the trend. The higher commission was proposed at the 11th edition of Delhi Auto Expo.
Secretary General, Federation of Automobile Dealers Associations, Gulshan Ahuja commented that the dealership margin is constant even when cost is increasing. He further said, “We had put across a suggestion that there is a need to revisit the dealership business model which includes dealership sales margin as well”. According to Ahuja, the reason for rise in cost of dealership management is the demand and need for better infrastructure, which includes better showroom and advanced workshop.
Due to the stiff competition and shortage of manpower, the cost of automobiles has increased. As per the statement of a top Motown executive, customers have to pay more on the same vehicle. On the contrary, the increase in commission does not necessarily mean that car financiers are eager to pay higher commissions.
Ashok Khanna, Senior Executive Vice President and Business Head (Auto Loans), HDFC Bank commented on this saying, “We may if required pitch for reducing the commissions. Three years back we did it. We got it down from 4-4.5% to 1.5%. We want to protect our margins”. Khanna further stated that the entire risk is borne by the financiers and presently the dealer’s commission on the loan is in the range of 1.5% to 3%, depending on individual bank’s policies.
As per the Society of Indian Automobile Manufacturers, due to the increase in interest rates and rise in cost, only marginal sales growth will be noticed in this fiscal year in the domestic market.
