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Auto dealers keen on FDI in multi-brand retail

Roudra Bhattacharya New Delhi | Updated on December 23, 2011 Published on December 23, 2011

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May look to expand overseas to improve margins

Auto dealers in the country are looking forward to a green signal from the Government on FDI (foreign direct investment) in multi-brand retail.

Though some automakers currently do not allow their dealers to open additional outlets for other OEMs (original equipment manufacturers) citing conflict of interests, such a move could help dealers' sustainability by improving margins and de-risking from the success of a single brand.

“We're in support of it — it is also good for the economy as a whole. There may be some challenges though, especially in a model where many car brands are sold under one roof. For one, manufacturers have a lock-in policy,” said Mr Nikunj Sanghi, President, Federation of Automobile Dealers Associations (FADA). Mr Sanghi operates Mahindra & Mahindra and Hero MotoCorp outlets in Rajasthan.

Dealerships in the country operate on margins of 2.5-4 per cent on car sales, even as their global counterparts enjoy margins of 10-15 per cent.

Lately, they have been burdened by higher real estate prices, rising cost of trained manpower and increased inventory holding costs as interest rates have gone up. The estimated size of the industry of about 8,000 dealers is Rs 3.5-lakh crore.

Global reach

In another de-risking strategy, large domestic dealers are also looking to expand operations overseas along with OEMs such as Mahindra and Tata Motors which are increasing their global footprint.

To facilitate this and incorporate learning from auto dealers in developed markets, it hopes to sign an agreement with US dealer body, National Automobile Dealers Association, next month for a global dealers' association.

“We're starting talks for an international council of dealers. We're trying to learn from them and it may help us go overseas. The younger dealers are very interested in this,” said Mr Mohan Himatsingka, Director, Maurya Motors — one of the oldest Tata Motors' commercial and passenger vehicle dealerships in eastern India.

FADA is holding its 7th Auto Summit on January 9-10 to discuss the changing equations in the industry as the auto market grows with many new players.

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Published on December 23, 2011
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