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Rediff.com  » Business » Why premium car dealers are seeing an unprecedented churn

Why premium car dealers are seeing an unprecedented churn

October 06, 2018 10:00 IST

Higher costs of car inventories, missing sales targets and manufacturer expectations, and soaring rentals, are eating into dealers' margins.

Lexus LX 450d

Photographs: Courtesy lexusindia.co.in

Premium car dealers are seeing an unprecedented churn across cities, thanks to higher costs of car inventories, missing sales targets and manufacturer expectations, and soaring rentals, which are eating into margins that were slim to start with.

Based in Mumbai and owned by Mohan Mariwala-led Auto Hangar, Linkway severed ties with Honda Cars India after having sold their cars since 1994.

When contacted, a Honda official said: "After a long and beneficially mutual relationship, Mariwala has expressed his wish to pursue other personal interests and not be associated with Honda." After mutual agreement, due processes are underway to avoid inconvenience to existing customers, the spokesperson added.

 

Volkswagen's Audi Delhi Central and Audi Gurgaon showrooms, which were run by Rashi Todd and his son Mandhir Singh Todd of the Zenica Group and were recently arrested by the authorities, have also been discontinued with no replacements announced yet.

"GST has made the holding value of a car more expensive for the dealer because he now has to buy it from the factory and pay GST. Whether he sells it to the customer or not," says Lalit Chowdhury, managing director of Infinity Cars

The new principle is that GST, which is included in the ex-showroom price, is realised by the dealer only when he makes a sale to the customer

On average the tax change increases the holding costs of a dealer's investory by between 10% and 12%, stretching dealers

Then Jubilant Motorworks, part of the Jubilant Group, which dealt in and operated the Lamborghini Mumbai showroom in Prabhadevi, is also pulling out of their agreement.

According to sources, the sports car brand, owned by Volkswagen Group, is soon to be taken over by Lalit Chowdhury, managing director of Infinity Cars, which operates the Aston Martin and BMW showrooms in Mumbai.

When asked about the reason for the switch to Infinity, officials of Volkswagen Group neither denied nor confirmed the development. For his part, Chowdhury declined to comment on Lamborghini, but said the premium car business had become tougher overall.

"The goods and services tax (GST) has made the holding value of a car more expensive for the dealer because he now has to buy it from the factory and pay the GST, whether he sells it or not," Chowdhury said.

Lexus LX 450d

The GST, which is included in the ex-showroom price, is realised by the dealer only when he makes a sale to the customer.

Earlier, a dealer could buy a car from the original equipment manufacturer and pay the VAT (value-added tax) when it was sold it to the customer.

The other trend in the business is "over-dealerisation." Rishabh Sheth, managing director of Group Shaman, which sells Hondas, Volkswagens and Mercedes-Benz cars, says that across the board dealers expanded their network over the last five years.

Meanwhile, premium sales did not take off nationwide as expected and Mumbai has been particularly challenging because overheads and taxes in Mumbai are the highest.

Lexus LX 450d

Sharad Kachalia, director at Navnit Group, which operates dealerships for Rolls-Royce, BMW, Ferrari, Honda, Maruti Suzuki and Hyundai, among others, says that escalating real estate rentals in Mumbai are hurting the business like never before.

"Margins on new car sales, which were 8-10 per cent, were getting eroded because of two reasons: Volumes are small to start with for premium cars, and real estate costs. The cost of a showroom in Worli, Mumbai, can easily run into Rs 1-2 million a month."

"The era of a showroom, where can you display a half a dozen cars, is going to be over soon," Kachalia adds.

Another dealer who declined to be named said: "Car markets may have grown overall but Mumbai has shrunk, the banks have become tighter and there will be more consolidation."

Pavan Lall in Mumbai
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