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Old 10th March 2009, 12:24   #31
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Originally Posted by greenhorn View Post
an association of manufacturers or suppliers formed to maintain high prices and restrict competition.
Now who decides whether the price for a certain commodity is high ?? Customers would be more than happy to get tyres at Rs.100 a piece. It's the Companies and Dealers who know what price point to maintain to help sustain thier business. Like someone mentioned earlier there are people who take a hit on the tyres ka profit and make up for it in alloys and services. But that deprives someone without an infrastructure for providing services the chance to make a sale. So it's essentially done to make sure that the customer chooses what shop to buy from based on his judgement rather than 'coz of the price factor.
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Old 10th March 2009, 14:30   #32
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Originally Posted by WasavaTyres View Post
Now who decides whether the price for a certain commodity is high ??
I guess we could reverse this as in the case of the Ludhiana BFG dealer and ask who is he to decide whether the price of the tyres is too low. Who is he to put in complaints to Michellin ? Who is he to request receipts etc just so he can get Michellin to ask other dealers to jack up prices.

If he can't supply at a similar price then that is his loss. Business is all about competition and if he is scared of competition he should not be in business.
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Old 10th March 2009, 14:32   #33
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Greenhorn, on what basis can you say that the tyre prices are HIGH?

Here, no one maintains high prices. Of course, some people importing tyres which are not available here rip off the customers. But for 99% of the tyres, the prices are not high.

Just because one place is able to sell it cheaper doesnt mean the other one has a HIGH price. It is higher but then that is the break even point of that dealer.

I dont think it is possible for any dealer to actually have high prices. He will fail eventually. That is 100% guaranteed. At the most, there might be a few hundred rupees difference. I am talking abt the B'lore market here.

tsk mentioned an incident abt Delhi. There it might be that the Noida dealer is selling at MRP. Not at RCP. Because he doesnt have competition, he might be able to make good profits. There is nothing wrong in that. the problem with the tyre industry is that we have always sold below MRP. We should have been like other retailers who sell only at MRP. That would have been fine. Customers would have got ripped off and not even bothered! : Ignorance is bliss they say!! rofl

Here, people know that no one sells at MRP(well, almost no one) and so they properly take advantage of it and bargain like crazy.

If you call this cartelisation, then what abt the garment industry? You mean to tell me that Louis Philippe, Arrow, etc make only 3-4% on their shirts and pants? Is the difference in "quality" between a neighbourhood tailor and the branded so much that people are ready to pay more than double?

If you look at it technically, there is cartelisation everywhere. YOu know that before raising the prices of Parle G and Tiger biscuits, both Britannia and Parle have discussions, meetings, etc and both increase the price simultaneously. There is cartelisation EVERYWHERE.
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Old 10th March 2009, 14:44   #34
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Originally Posted by Nikhilb2008 View Post
If you look at it technically, there is cartelisation everywhere. YOu know that before raising the prices of Parle G and Tiger biscuits, both Britannia and Parle have discussions, meetings, etc and both increase the price simultaneously. There is cartelisation EVERYWHERE.
Well, two wrongs do not make a right dude.

As for who decides whether prices are high, demand and supply do. tsk's example supports that theory. As for garment retailers, do we not pay extra for a Michelin, as compared to say a JK Tyre? And yes, there is variation in the prices of Allen Solly across outlets. That is what this is all about, aint it?
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Old 10th March 2009, 15:27   #35
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Originally Posted by Nikhilb2008 View Post
Here, each company has a certain policy. The dealer at the MAXIMUM makes abt 8-9% profit. This is also quite impossible in a market like Bangalore. Everyone is offering freebies like WA/WB, etc. The profit on tyres is BARELY enough to run the shop when you calculate your expenses like salary, electricity, water, rent, etc...

Most companies have something called an RCP. Recommended Counter Price. This is usually 3-4% over the landed price. People do try to sell above that(it is not ILLEGAL or unethical). This RCP is less than the MRP.

It depends on interpretation. Their final margin (after calculating expenses, etc) can be 2%. In that case 2-3% is quite good actually! If their gross profit is 2-3%, it is BS. Net profit being 2-3% is decent actually!
Nikhil, since you & WT are in the business and this is a public forum, I do not want to go into exact figures but I can assure you that having observed the market very closely & having also observed the workings of a few of the bigger dealers around North India I know for a fact that 2-3% is not what they earn.

Of course, earning a decent profit is the first & primary reason to start a business and there's nothing wrong in doing so. Just that the way the tyre industry goes about earning it's margins, it leaves a bad taste. I'm not against anyone making a margin while doing honest business, just that some processes used to obtain said margins in the industry are not really ethical.

And just for the record unless you have massive volumes, you cannot sustain a business in the long term at 2-3% margins.

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Originally Posted by Nikhilb2008 View Post
Well, market forces to play their role. How else do you think the JC Road dealers have survived so long?
If market forces were actually at play, companies would not be forcing a minimum price on the consumer. Pre-fixing a price for the product and making sure that no one sells below that price is not market force price determination.

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Originally Posted by WasavaTyres View Post
Nice writeup Nikhil. I think Ishaan is the only one making decent money selling tyres.
No wonder I'm so poor eh WT! And I think Headers nailed it perfectly in his reply!!

P.S. What's your real name btw?

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Originally Posted by WasavaTyres View Post
I was surprised to read his post when he said "dealers claim that they only make 2-3 % profits" it's not a claim but the fact if you ask me. Plus in B-Towns where the sales of HV (high value) tyres and upsize tyres is less and most dealers sell only stock tyres things get even worse. With free WA /WB and in some cases even N2 being filled for free there's not much room to think it's a handsome return on tyres. A decent set of wheel alignment+wheel balancing tyre changer machines would cost about 14-16 lakhs. Add to it 1.25 approx for a Nitrogen machine. Forget the running expenses, just to recover the costs on this investment the dealer would need to work his backside off.
True, small towns is a problem and even more price competitive than bigger cities at times. But the competition is limited to a few dealers unlike say in Delhi where there's a tyre shop on every corner.

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Originally Posted by Nikhilb2008 View Post
No no. In the tyre industry, a cartel would be if Michelin, Continental, Yokohama, Bridgestone and MRF agreed to increase the prices of ALL their tyres by 20% without any reason. That would be bad for everyone EXCEPT the company itself.
That does happen, remember when virtually every company hiked prices last year on account of higher rubber prices? Well the rubber prices have tumbled big time but have we seen a price reduction yet?

I don't see one coming in the near future either.

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Originally Posted by Nikhilb2008 View Post
It's a very very tough business. There is no extra profit at all to be made in this business. Believe me. Very few people in the tyre industry(selling tyres) are crorepatis. I know a few in the Bangalore market and they have made their money elsewhere or by doing shady things(tax evasion, smuggling in from abroad, undervaluing imports, etc..).
True, but like I said earlier no one gets in or stays in a business to do charity. Sooner or later the money runs out & the business shuts shop. So if we see so many dealers doing well there is some money to be made for sure. Maybe not 20% but it's not 2-3% either.

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Originally Posted by Nikhilb2008 View Post
In a purely market driven place, you will not have so many dealers. Currently, due to the "protection" offered by the big companies, many people are getting into it. If even this was not there, you would have less than half of the current number of dealers. Which would in turn mean that there would be no way of getting a good quote from one shop and bargaining with the other.
The "Protection" is what I disagree with. I know (having run my own businesses for many years) that one cannot survive without profits and have nothing against dealers making money since they also have expenses to meet & establishments to run. Not to mention also save something & have a good life style. But, the companies enforcing prices & trying all kinds of shady practices to achieve their goals is not something I approve of.

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Originally Posted by Nikhilb2008 View Post
It is not legally binding. That is why you see most small shops selling at 1-2% profit. That is what I am trying to say.

Look, you dont have to believe me. But I dont see anyone complaining abt the MRPs of various products. Why this?
Because normally (unlike the tyre industry) if someone is willing to give me a discount & sell under the MRP, another dealer does not create a fuss and neither does the company.

As a consumer, my objective is to spend the least amount of money to get the best possible stuff (regardless of what I'm buying) and in other segments I'm allowed to choose where I'm getting a good deal & buy from there.

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Originally Posted by WasavaTyres View Post
Dealer margins in the tyre trade are based on the number of tyres you sell. Alll companies follow a slab system wherein the higher your slab (and SKU) the more discount you get. Dealers are classified like this :
99>150 ......... 200>275 and so on. In delhi if you happen to go to the tyre market behind novelty cinema you will get tyres at much lower price than in karol bagh since most dealers there are into just trading of tyres wholesale and have nothing to do with fitment or associated services.
Bingo! That's the real system of how companies sell tyres. The more you sell, the more you earn since the purchase price for the dealer is based on the number of tyres he buys.

And by that logic shouldn't the bigger dealers be the ones selling the tyres the cheapest?

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Originally Posted by Nikhilb2008 View Post
Greenhorn, on what basis can you say that the tyre prices are HIGH?

Here, no one maintains high prices. Of course, some people importing tyres which are not available here rip off the customers. But for 99% of the tyres, the prices are not high.

Just because one place is able to sell it cheaper doesnt mean the other one has a HIGH price. It is higher but then that is the break even point of that dealer.
And on what basis do you say they are priced well? I can buy a 175/70 R13 tyre from Rs. 1200 to 3000, I think based on a person's point of view any tyre priced above 1200 can be called over priced. I would think that would be a very subjective factor.

Also, I do think that almost all companies price their 16/17/18"+ range exorbitantly high, The same tyres are available for less than half the money abroad. It's just that they know it's still a niche market & can get away with it so price them higher.

Quote:
Originally Posted by Nikhilb2008 View Post
The problem with the tyre industry is that we have always sold below MRP. We should have been like other retailers who sell only at MRP. That would have been fine. Customers would have got ripped off and not even bothered!

Here, people know that no one sells at MRP(well, almost no one) and so they properly take advantage of it and bargain like crazy.
So you are all in favour of price determination and enforcement of the same but don't agree with bargaining? Come on man, a business man's basic purpose is to make as much profit as possible whereas a customer's basic aim is to get the best deal possible. What's wrong with bargaining? After all, it's the customer's hard earned money that is being spent.

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Originally Posted by Nikhilb2008 View Post
If you call this cartelisation, then what abt the garment industry? You mean to tell me that Louis Philippe, Arrow, etc make only 3-4% on their shirts and pants? Is the difference in "quality" between a neighbourhood tailor and the branded so much that people are ready to pay more than double?
In the garment industry, there are regular sales where I can buy stuff for anywhere from 30-50% off, do the tyre companies do anything of the sort? No. Also, if I know a dealer well he's willing to give me discounts even during the no sale season, what's wrong in that? No one complaints & no company tries to avoid that.

I know the margins are higher there but just trying to illustrate the fact that you're comparing oranges to apples.

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Originally Posted by Nikhilb2008 View Post
If you look at it technically, there is cartelisation everywhere. YOu know that before raising the prices of Parle G and Tiger biscuits, both Britannia and Parle have discussions, meetings, etc and both increase the price simultaneously. There is cartelisation EVERYWHERE.
No there is not.

Last edited by iraghava : 10th March 2009 at 15:29.
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Old 10th March 2009, 15:51   #36
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Originally Posted by iraghava View Post
Nikhil, since you & WT are in the business and this is a public forum, I do not want to go into exact figures but I can assure you that having observed the market very closely & having also observed the workings of a few of the bigger dealers around North India I know for a fact that 2-3% is not what they earn.
Mostly not. As I said, it's the way you see it. If they mean 2-3% at the end of the year, then it's not surprising. If they are talking abt 2-3% Gross profit, then yes, Bull$#!t.
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Originally Posted by iraghava View Post
Of course, earning a decent profit is the first & primary reason to start a business and there's nothing wrong in doing so. Just that the way the tyre industry goes about earning it's margins, it leaves a bad taste. I'm not against anyone making a margin while doing honest business, just that some processes used to obtain said margins in the industry are not really ethical.
Could you please elaborate on this? Whatever said and done, I've been in this business for just 7-8 months. Would like to hear you . Please PM me if you dont feel you can post it publicly.

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And just for the record unless you have massive volumes, you cannot sustain a business in the long term at 2-3% margins.
Agree. The 2-3% figure is bogus if you are talking abt gross profit. Let's not argue further on that. Both of us are talking abt big markets like B'lore and Delhi. I dont know abt Tier II markets like WT.

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Originally Posted by iraghava View Post
If market forces were actually at play, companies would not be forcing a minimum price on the consumer. Pre-fixing a price for the product and making sure that no one sells below that price is not market force price determination.
The way I see it is, it is fifty-fifty. Market forces are not totally in control, but then neither are the tyre companues. Many many dealers sell below RCP and nothing ever happens to them because no company in India has the cojones to strip them of their dealership or punish them in anyway. Not in today's market anyway.


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Originally Posted by iraghava View Post
That does happen, remember when virtually every company hiked prices last year on account of higher rubber prices? Well the rubber prices have tumbled big time but have we seen a price reduction yet?
I agree. I didnt think of this. This is very true. There has been no price reduction due to fall in rubber prices. Only the cut in excise duty has resulted in marginal price decreases. Probably because the excit duty cut makes the front page of the newspaper and people are aware of it.
I don't see one coming in the near future either.


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Originally Posted by iraghava View Post
True, but like I said earlier no one gets in or stays in a business to do charity. Sooner or later the money runs out & the business shuts shop. So if we see so many dealers doing well there is some money to be made for sure. Maybe not 20% but it's not 2-3% either.
Yes. You phrased it right. But it takes a lot of hardwork for sure. It really isnt easy.

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Originally Posted by iraghava View Post
The "Protection" is what I disagree with. I know (having run my own businesses for many years) that one cannot survive without profits and have nothing against dealers making money since they also have expenses to meet & establishments to run. Not to mention also save something & have a good life style. But, the companies enforcing prices & trying all kinds of shady practices to achieve their goals is not something I approve of.
Again, I would really like to know what sort of shady practices these companies indulge in. I know you are one of the best people to tell me abt this! Please do. I would love to learn!

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Because normally (unlike the tyre industry) if someone is willing to give me a discount & sell under the MRP, another dealer does not create a fuss and neither does the company.
True, but then how many things will you get for below the MRP?

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Originally Posted by iraghava View Post
As a consumer, my objective is to spend the least amount of money to get the best possible stuff (regardless of what I'm buying) and in other segments I'm allowed to choose where I'm getting a good deal & buy from there.
Even in this segment you have a choice. As I said, it is obvious not ALL dealers follow this RCP business. Even now you have an option.

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Originally Posted by iraghava View Post
And by that logic shouldn't the bigger dealers be the ones selling the tyres the cheapest?
Yes. It should be. but sometimes the biggest dealers dump the tyres on the market. They dont sell to the end customer. They become distributors though they dont call themselves as much. Dealer A is a very large dealer. He sells at his cost price + 100Rs to Dealer B.

Dealer B isnt even an authorised dealer for Company X but he can give prices cheaper than another authorised dealer because he has very low overheads, doesnt invest much in terms of service, etc. So, Dealer C who is an authorised dealer and has invested a lot in his shop so that it is upto the level Company X wants loses out. So, even though Dealer C actually does more quantity than Dealer B, he is not able to match his price.

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Originally Posted by iraghava View Post
And on what basis do you say they are priced well? I can buy a 175/70 R13 tyre from Rs. 1200 to 3000, I think based on a person's point of view any tyre priced above 1200 can be called over priced. I would think that would be a very subjective factor.
Exactly my point! It is cimpletely subjective. I didnt want to get into a proper debate as such. Just wanted to say that price is very subjective.


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Originally Posted by iraghava View Post
Also, I do think that almost all companies price their 16/17/18"+ range exorbitantly high, The same tyres are available for less than half the money abroad. It's just that they know it's still a niche market & can get away with it so price them higher.
Absolutely agree. They know that the kind of people buying 16" and above tyres are pretty well to do and can afford them and go out and loot them! But in my opinion, this cannot go on forever. There will eventually come a time when these prices will go down. They HAVE to.

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Originally Posted by iraghava View Post
So you are all in favour of price determination and enforcement of the same but don't agree with bargaining? Come on man, a business man's basic purpose is to make as much profit as possible whereas a customer's basic aim is to get the best deal possible. What's wrong with bargaining? After all, it's the customer's hard earned money that is being spent.
When did I say I was against bargaining?
You misunderstood me.

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Originally Posted by iraghava View Post
In the garment industry, there are regular sales where I can buy stuff for anywhere from 30-50% off, do the tyre companies do anything of the sort? No. Also, if I know a dealer well he's willing to give me discounts even during the no sale season, what's wrong in that? No one complaints & no company tries to avoid that.
The fact that they have sales where you can buy something for 50% of the price shows what kind of margins they operate with. I have no clue what sort of margins the tyre companies keep.
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Old 10th March 2009, 19:55   #37
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I guess we could reverse this as in the case of the Ludhiana BFG dealer and ask who is he to decide whether the price of the tyres is too low. Who is he to put in complaints to Michellin ? Who is he to request receipts etc just so he can get Michellin to ask other dealers to jack up prices.
My friend this man has invested his money in a business to get a return on it. And if he feels that he'll be losing out just 'coz someone else is not interested in making money then you cannot hold it against him for taking necessary action.

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What's your real name btw ?
My name's Indraneel

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But, the companies enforcing prices & trying all kinds of shady practices to achieve their goals is not something I approve of.
What is this about ?? The not reducing tire prices when crude and natural ruber prices have fallen / not passing on CenVAT benefit to consumers / taking deposits in the name of guru kripa finance ?? !! I seriously thought for a minute there ki all tyre companies are into some illegal work akin to smuggling
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Old 10th March 2009, 22:37   #38
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My friend this man has invested his money in a business to get a return on it. And if he feels that he'll be losing out just 'coz someone else is not interested in making money then you cannot hold it against him for taking necessary action.
The other dealer was just supplying tyres and not susdising by overcharging for alloys. He managed to earn a living supplying at 5500 each so whats bakshisons problem ?

I am sure the other trader is not losing money on the tyres or selling them cheaper out the goodness of his heart. He is obviously going for the volume market and sells enough to earn a decent living.

Last edited by bigman : 10th March 2009 at 22:39.
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