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Car Dealership as Business: Profit Margins, Costing, Nitty Gritty

Car Dealership as Business: Profit Margins, Costing, Nitty Gritty

Are you considering to enter in Business of Car Dealership. Know how challenging with Estimated Costing, Profit Margins including some key Nitty Gritty involved in Dealer Business in India

 

Car Dealership Business

There are many people who are interested in knowing how much money does a dealership make or intend to look for car dealership as a prospective business then these are some of the facts about revenue and costing which you should know

A Car Dealership earns Revenue through multiple sources

1. Sale of car

2. Sale of accessories

3. Fixed Handling Charges been added in Price List

4. Commission through bank loan / insurance companies

5. Incentive target schemes from Partner Banks, Manufacturers

6. Exchange cases

7. After sale service through Workshop as Independent Profit Center

 

While there are costings also which are involved

1. Of course the high rental value where the dealership is operating, including Rental of Stockyard and Workshop

2. High Employee cost with Different Salary Structure including Incentives

3. Inventory financing cost from the respective banks. For buying car from Manufacturer and stock up, Dealer takes loan from Bank and pays interest to Banks. This Inventory is rotated

4. Spare parts stock up cost which a dealer maintains in the workshop

5. High Electricity bill, Housekeeping maintenance and other Notional Costs

If to tell a brief on Revenue sources,

» A Car Dealer in Typical Cat - A Location among one of the Popular OEM earns anywhere around Rs 16000 - 30000 based on the Model Type as Fixed revenue on sale of Car. Plus there are add on incentive targets based on Quarterly Target / SSI Score, Sales Number, CSI Score and overall compliance. Dealer Handling Charges per car of Rs 5000 to Rs 7000 also enhance in Revenue

» There are accessories targets given to sales consultant and on an average accessories worth rupees 10000, on which dealer earns near around Rs 3500 on an average

» Bank loan, a  dealer keep the target of minimum 1% payout retention even after offering deal discounts on the total financing. For example, a dealer selling 200 cars and has inhouse financing of 50% with loan ticket size of Rs 5 Lakh, earns on an average around Rs 5000 after tax on each and every car financed

» The Insurance has high Payout slab to almost 20% on Own Damage Premium which makes it to around Rs 3000 - 3500 on an average in the dealership having Insurance OD Premium of Rs 15000 - 17000. Dealerships generally strive for minimum 90% Inhouse Insurance.

» Exchange cases are now appeared in as also a major source of revenue, especially for dealers where Manufacturer support in as Certified Car Stock.  

 

Costing

» High rental value especially in Cities like Delhi and Mumbai where a dealer owner shelves off Rs 8 Lakh - 10 Lakh / per month or even higher as prime rental value for the showroom for better visibility and around Rs 1 - 1.5 Lakh on an average for Stockyard.

» Employee Costs especially in showroom with high average salary takes up another Rs 7 to 8 Lakh cumulative salary per month or even higher for a dealership with around 15 to 16 Sales consultant, 4 team leader, 1 Showroom Manager, HR Manager, Reception, Back office calling staff, Security, Runners, Accounts apart from GM and CEO

» Then are Inventory financing cost which eats up a lot of Interest. For even a single Car worth Rs 5 Lakh remaining unsold, a dealer almost pays in Rs 10K interest cost to the Bank in 90 days

» Local Level Marketing Cost, Events, Digital campaigns and other advertisement promotion cost

» Electricity Bill, Maintenance is also high with average bill goes to extent of Rs 2 Lakh a month with some.

Customer Negotiate and dealerships to rotate inventory, offers in discounts from there own margins in some of the models and cars which are more than 4 to 5 month old.

 

Is Dealership Business Profitable

Well - its a Million Dollar Question and it all depends on your business acumen to make the business profitable.

As can be seen - its a high pressure business and high attrition rates further make pressure on the business. Been this industry needs trained skill sales - there are some dealership which are profitable and some are loss making based on sales. Even there are Penalty from OEM which they impose on dealership - if a dealer offers higher than agreed cartel discounts to spoil the market trend.

Cut throat competition with other brands, within other dealership in close viscinity is what makes Dealership margins shrinking especially with brands where the models are not fast selling. Still - for some one who has Trained workforce can make money by selling cars

Adding the fact - Workshop is what an independent revenue center and there Labor part, Accidental repairs, High margin on sale of spare, consumable especially with the fact that workshop are not taken in prime places helps in making these workshop a profit center.

Also, Exchange cases are on rise and a Manufacturer offers high contribution in exchange bonus to help dealer to rotate inventory. This is emerging as new stream for revenue

So if you are planning for a New Car Dealership business - hope the above point helps you understand about costing, profitability and some nitty-gritty as been involved.

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Comments 1

Guest - DATHATHRI NAIDU on Thursday, 21 March 2019 19:32

Good peace of info. Yes the latest update on manufacturer wise and model wise sales figures and market share will help us a lot as a consultant

Good peace of info. Yes the latest update on manufacturer wise and model wise sales figures and market share will help us a lot as a consultant
Guest
Thursday, 24 September 2020

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