India auto dealer body asks OEMs to revise margins to minimum 7%

The Federation of Automobile Dealers Association (FADA) has been for long reaching out to OEMs in the country to improve dealer margins, which it says has been one of the lowest globally. In a letter written by FADA to its members, the association has said that some of the OEMs in the country are positively looking to revise the margins and have started consultations with their dealer council or senior dealers on the same.

FADA’s letter states that the dealer body has written a number of times to the Society of Indian Automobile Manufacturers (SIAM) on enhancing the fixed dealer margin to 7 percent of the selling price. SIAM, on its part, has conveyed the same to all OEMs.

According to FADA president Ashish H Kale, “FADA has been working for the betterment of the auto retail business and has been bringing in transparency, be it releasing auto retail figures on a monthly basis or inventory levels for different categories of vehicles.”

The dealer body says to supplement its members’ efforts with OEMs and to further enhance fixed dealer margin as well as to bring more transparency on the margin levels prevalent in the industry, it has conducted a study on OEM-wise fixed dealer margin across various price bands or segment types. It claims that the Indian auto dealers operate on one of the lowest sales margins.

To buttress its case for a higher dealer margin, FADA has released some data on passenger vehicle dealer margins in some countries, detailed as under:

– USA – 8-10%
– UK – 6-8%
– Russia – 12-14%
– Gulf Area – 12-14%
– China – 9-11%
– South Africa – 12-14%
–  France, Germany, Italy, Spain, Belgium & Denmark – 13-14%

No details have been released on comparative dealer margins in other countries for the commercial vehicle and two-wheeler. segments. 

FADA says that, going forward, it will conduct a dealer margin study once in every quarter and will keep its members updated.

Furthermore, the auto dealer body has released the percentage range of margins prevailing for each OEM across various price bands and in case of CVs across GVW category. “If required in the future, we can further detail the study in the model-wise and variant-wise format for further transparency.

I will once again request all of you to initiate discussions with your OEMs, if not done so already, to upwardly revise our fixed margins to a minimum 7 percent. Remember, this time it is not the question of profits, but is a question of our survival. Together, we have to make sure that we survive through this crisis and beyond the crisis, build up sustenance to absorb any future disruptions,” concludes Kale.

FADA’s move urging Indian OEMs to hike dealer margins comes even as the ailing domestic automobile industry posted a year-on-year decline of 18 percent in FY2020 and is headed for a 25-35% decline in FY2021, given the current market and other economic trends.