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All about Automobile Dealerships – Part 1

At Auto Punditz; we have extensively covered the performance of OEMs since the beginning and we now feel that somehow the frontline warriors of the respective OEMs needs to be covered as well. An Automobile Dealership, also known as a ‘Channel Partner’ is one of the most important part of the Automotive Industry and it needs to be recognized much more than it usually is. The reason the dealerships are termed as ‘Channel PARTNER’ is because they are equally responsible / partnered with the OEM to make a brand successful or not. The Channel Partners are the unsung heroes that take the brand promise of the OEM and deliver it to the end customer. The Automobile Dealerships are the link which can make an OEM’s brand image from ‘good to great’ or even make it ‘bad to worse’. Sales in today’s scenario is majorly affected by ‘Word of mouth’ and it entirely depends on the experience customer has with a particular brand. And the dealerships are the link between the Brand and the Customer which  Dealerships shall derive revenue from creation and sustenance of long-term relationships with their customers. In automobile sales; the dealerships play an extremely vital role in delivering this ‘customer experience’.

We shall be covering the aspects of the automotive dealerships in multiple posts and thus named this as Part 1. We will be explaining the basics of the Automobile Dealerships in this post. An Automobile Dealership is an entity that sells new or used vehicles at the retail level, based on a dealership contract with an automaker/OEM. The OEM primarily scouts for businessmen in the respective territories who shall represent them by investment to open dealerships that shall provide sales/aftersales on behalf of the OEMs. The dealership post appointment by the OEM employs automobile salespeople to sell their automotive vehicles. It may also provide maintenance services for the vehicles, and employ automotive technicians to stock and sell spare automobile parts and process warranty claims.

An Automobile (Car) Dealership in India

Automobile dealerships are usually franchised to sell and service vehicles by specific automakers. They are often located on properties offering specified space to have buildings housing a showroom, mechanical service, and body repair facilities, as well as to provide storage for used or new vehicles. While dealerships are supposed to be in the city centers to attract higher footfalls; bigger dealerships are located out of town or on the edge of city centers.

While a typical dealership associated with any OEM is supposed to have 3S facility; i.e. Sales, Service & Spare Parts – One can associate with the OEM to be only to offer authorized service centers or even become a distributor for parts. In case of 2-wheelers / commercial vehicles; one can chose to be a sub-dealer as well who are either selected by authorized dealers or even OEMs. The sub-dealer concept allows the OEM to multiply its reach much faster.

Automobile Dealerships have always attracted a lot of interest from Businessmen across India. However; we would like to highlight the challenges that any businessman needs to consider prior to investing in an automobile dealership –

  1. It is an capital intensive business: Lot of initial investment/capital will required to acquire or rent properties for Showroom, Workshop and even Vehicle Stockyard. Typically it can go upward to Rs.20 cr in case of a Car Dealership. Over and above this; once the business starts huge amount of money shall be required for carrying Inventory as well. For assumption: A Toyota dealer carrying a stock of 100 Innova’s shall have near to Rs.20 cr invested in stock alone*. And if this money is borrowed from a bank; interest needs to be payed as well for the stock until its cleared.

  2. Low Margin Levels: Against the popular belief that Automobile Business offers extremely high margins; the margin levels are actually one of the least one can imagine. The Industry Average is ~3.5%-4% and can be extremely straining for the business if required volumes are not attained.

  3. High Manpower Requirement: The business is highly manpower intensive and Automobile Dealerships in India as a business employ one of the highest in the overall industry. The number of manpower required to operate in Sales / Finance / Accessories / Insurance / Service / Bodyshop / Used Vehicles / Parts / Stockyard / Backoffice of a respective dealership can go upto hundreds! We shall study it in detail in our later posts.

  4. Complicated Business: It is neither a tech oriented business nor requires any specific expertise. Due to its complicated dependency on multiple factors (margin from sales, allied business, after sales, parts, etc) and high fixed costs; any XYZ businessman cannot find success easily.

  5. High Time, Management & Process oriented: One cannot manage the automobile business without spending adequate time as timely reviews and actions are very much required at various levels of the operation. The business also requires high amount of process orientation as well – Slightest indiscipline can collapse the overall operations or have an irreparable damage to the brand.

However; owning an automobile dealerships have been a matter of pride and passion for many businessmen who have entered the industry. The ‘Passion’ for automobiles and the ‘Obsession’ to create a customer-oriented environment differentiates a particular automobile business owner to another. The OEMs who are successful in identifying such businessmen and associating with them further accentuates the brand’s motive and presence in the market.


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