[GTO]

Originally Posted by Turbanator

Now all these sales to Dealer are revenue for a Manufacturer which otherwise would have become Inventory

Gross margin on a mass market car - 8 - 9%.
Net margin on a mass market car (after all costs) - 3 - 4%.

Take the cost of financing inventory at 1% and add at least 0.25% for the parking, upkeep & security - why bother with another capital intensive business which has such slim margins?

There's one more point I thought of - Labour costs. An entry-level worker will accept a salary of Rs. 10,000 at the local car dealership. If he were to join Toyota however, with the higher salary & all the benefits etc., his cost could easily come up to Rs. 30,000 / month. Dealers can think & act cheap. Manufacturers can't.

[vinit.merchant]

All points valid and taken, 100% agreed, but I still cannot fathom why companies like Skoda, Fiat and the likes, which are not selling cars "mainly" because of the A.S.S. concerns, come up with COCO concept at least in Metros and some Tier II cities. They can do a Pareto analysis and come up with 20% of the locations that are generating 80% of the sales.


According to me, for these companies, a COCO can prove to be more than worth the efforts and investment.

Again, they can float a separate company under their management to take care of these Service centers and hire separate management personnel to look after it. Additionally these A.S.S. will have their own profits to show off.

[igybeck]

Though the car manufacturers realize the importance of the showroom or ASS experience it is still not their core function. Rather than investing money in owning and operating showrooms, which might cost a lot they would be rather happy in investing that money in R&D and product development.

[alpha1]

Originally Posted by vinit.merchant

All points valid and taken, 100% agreed, but I still cannot fathom why companies like Skoda, Fiat and the likes, which are not selling cars "mainly" because of the A.S.S. concerns, come up with COCO concept at least in Metros and some Tier II cities. They can do a Pareto analysis and come up with 20% of the locations that are generating 80% of the sales.


According to me, for these companies, a COCO can prove to be more than worth the efforts and investment.

Again, they can float a separate company under their management to take care of these Service centers and hire separate management personnel to look after it. Additionally these A.S.S. will have their own profits to show off.

Most global companies operate based on Global directives and policies.
There is an element of local flavor, but only as long as it falls in line.

Globally Skoda does good business.
Globally Skoda knows that its core competency is in R&D, manufacturing and marketing.
Globally Skoda has decided (after analysis) that all its sales and service will be taken care by channels.

Local Skoda entity (perhaps) cannot go against these ethos.
And we haven't really started crunching the numbersyet: the investment and the returns.

[CarJunki]

Even for the scale of reach that Maruti, they have only 4 COCO service stations. 3 In New Delhi and 1 in Chennai. The scale of logistics required to operate a COCO is quite large. Just imagine, they have to stock almost parts of every model that is currently sold and also for phased out models.

Couple this with the fact that there are many OEM parts supplied by different vendors.
It gets even more complex if some parts are direct imports.

Now if a company like skoda is not able to scale its dealership network where the investment for company is low, there is no possibility of them succeeding at creating even a single COCO.

[vishal9999]

I guess even better proposition then having a COCO model would be to have 5 years and 1 lakh kms warranty and service package built in the car pricing. This saves all the hassles for the end user and objective is also achieved. Especially this is true for all non –Japanese manufacturers.
I think no car manufacturer wants to enter this territory of COCO or comprehensive warranties for the simple reason they work on Printer model. Printer is sold at 50% of the price and ink is sold at 2lakh/kg more than price of silver and many other metals, so that they can milk you every day.

[rsm97]

Originally Posted by GTO

Gross margin on a mass market car - 8 - 9%.
Net margin on a mass market car (after all costs) - 3 - 4%.

Take the cost of financing inventory at 1% and add at least 0.25% for the parking, upkeep & security - why bother with another capital intensive business which has such slim margins?

There's one more point I thought of - Labour costs. An entry-level worker will accept a salary of Rs. 10,000 at the local car dealership. If he were to join Toyota however, with the higher salary & all the benefits etc., his cost could easily come up to Rs. 30,000 / month. Dealers can think & act cheap. Manufacturers can't.

Manufacturing and servicing don't have much in common. Not an expert in either one, but could think of a few points.

One, there is human resources angle. Servicing a mass market product takes multiple of people those required for producing. Think about their training & retention and entire game changes. Two, as the operation expands from maybe a couple of locations to hundred of locations, a strong business control system becomes necessary that consumes management bandwidth. Three, a typical servicing business expands into cross relationships (for cars - insurance, accessories, tyres, etc) those work optimally with high flexibility and less regimentation.

I am sure there will be stronger and more such reasons.

Point is, will COCO benefit the customer. Maybe customer will get more consistent quality of service. But if entire S&S business turns COCO, guess that the the cost of inefficiency will be high and customer will be less than willing to bear that.

[GeeTee TSI]

Going by most Service centers' attitude (VAG) maybe a CoCo would bring in a breath of fresh air hopefully, with some professionalism thrown in. However, influence and reach at a local level by the dealership 'groups' brings even global majors at their mercy.
Have hardly seen any action against errant dealers (a BMW or a Skoda) despite well publicized horror stories

Is it (channel partners) a necessary evil OEMs have to live with, to be in business?

[SmartCat]

It's return on equity (RoE).

If a car company gets into dealership business, its RoE will fall from the current 25 to 30% levels to 10 to 15% levels.

Most dealerships are relatively small businesses who don't care much about return on equity. If they put up 10 Cr capital, they will be happy to get regular monthly cash flows. Breakeven brings a big relief. Any returns in excess of 8% (bank FD) brings a big smile on their faces.

[i74js]

Originally Posted by revharder

I heard recently that Hyundai Motor Plaza in New Delhi (on Mathura Road) is closed now.
It was a COCO.

I called up my service guy at HMP Mathura Road and he cited the reason of closure triggered by the poor sales (this was a sales cum service outlet). He said that local dealers are able to give better rates / commission from dealer margin for making additional car sales whereas HMP has no such policy; the discounts are centrally approved and applied across all HMPs.

This has resulted in poor sales for 2 consecutive years resulting in the decision to close business operations in Delhi.

So "poor sales resulting in no service" for the customer

[Slowjet]

Rather than opening COCO by car manufacturers / two wheelers, they can open COCO brand shops where they can display their entire range. They can do this in Tier 1 cities. They should not open in metors as one COCO may not be able to cater to the entire metro and opening couple of them will only result in increase in costs. They should not sell it directly to customer but route it via the dealer. Customers can visit such brandshop to understand the vehicle / company in a better way. Such COCO brand shop can talk about technology, the car development process, history, trust etc, vehicle specific technical details and so on. The dealers are not at all equipped to handle the above points. COCOs can display here individual components as well like engine, transmission etc to make it more attractive. Have display panels that run videos. With this they should be able to connect with Customers better, engage them and provide them 'the experience' of the brand

[jinojohnt]

It is easier to control the quality of an assembly line than a Service Center. Manufacturing is more 'predictable' than servicing. Servicing can mint money, but a headache nevertheless. If something goes wrong in servicing, the Manufacturer can put the blame on the dealer/workshop. In today's world where blame-game sometimes takes priority over fixing issues, it can be tricky for the manufacturer if the service center is company owned. It also depends on how many customers are willing to pay extra for a "company owned" service (because I guess the costs would be higher than that of Authorized Service Centers)

[aashishnb]

Originally Posted by vinit.merchant

All points valid and taken, 100% agreed, but I still cannot fathom why companies like Skoda, Fiat and the likes, which are not selling cars "mainly" because of the A.S.S. concerns, come up with COCO concept at least in Metros and some Tier II cities. They can do a Pareto analysis and come up with 20% of the locations that are generating 80% of the sales.


According to me, for these companies, a COCO can prove to be more than worth the efforts and investment.

Again, they can float a separate company under their management to take care of these Service centers and hire separate management personnel to look after it. Additionally these A.S.S. will have their own profits to show off.

Here's my logic:
1.a When these companies give dealerships, they charge a huge amount of deposit from them (in addition to the dealer having to spend on the capex).
1.b They get the dealers by selling dreams about so many cars they'll launch & sell, etc. and the amount of money the dealer will make - basically their sales pitch to the dealer!!
Therefore,when the actual sales are lower and the dealer has to make money somewhere - and the only place is the 'customer'. Since, the companies themselves were part of the problem, there isn't much they can do about it.

2. Most of the dealers own land / real estate at historic cost (owned in family by generations, etc.) and therefore do not count it as their investment. Even if they had to buy / lease it themselves, cost of acquiring for someone local will be much lower than cost of acquiring for a large corporation with offices elsewhere. All operating costs, especially of compliance are also higher.

3. The counter logic to the whole scenario - even if there are COCO service centres, what makes the mechanic there to not do the same thing as he is doing now at the 'dealer' service centre. In fact, one could argue that with a local dealer, atleast the customer can go to the 'owner' and complaint and he will then waive off some charges (rare but still go with my flow), as compared to the COCO where the complaint will get lodged in one of the various layers of bureaucracy.


A better solution to my mind would be :
1. For the company to have a much better level of training for the staff at the service centre.
2. Hire mechanics / engineers who are enthusiastic (even if partly) about vehicles & machines, so that they are keen to get the problem sorted.
3. As customers, we should not expect a fancy English speaking 'salesman' type person at service centre.

In fact, I think all service centres should just eliminate these 'salesmen / translators' whose job is just to interact with the customer, oversell stuff, and then explain problems to the mechanics / engineers. Half the time, they don't understand anything about the machines.

The better option is for the concerned mechanic / engineer who is going to do the work to talk to the owner, make the job sheet, find problems if any, put his remarks on solution, etc.

[GTO]

Originally Posted by vinit.merchant

All points valid and taken, 100% agreed, but I still cannot fathom why companies like Skoda, Fiat and the likes, which are not selling cars "mainly" because of the A.S.S. concerns, come up with COCO concept at least in Metros and some Tier II cities.

Skoda is incurring losses in India. Do you think its head office would approve crores of rupees for dealerships . Not to mention, Skoda's global policy (like any other manufacturer) is to sell through dealerships. It certainly won't change that rule for India which brings a tiny speck of its global sales.

If Skoda asks for $20 million to open 10 dealerships, it's global HO will be . Not to mention, existing dealerships will be up in arms!

Lastly, the Skoda CEO himself is nice & comfortable handling the factory. Do you think he'd be willing to take on the additional responsibility of a COCO dealer network which can be as work-intensive as running the company itself?

Originally Posted by smartcat

If a car company gets into dealership business, its RoE will fall from the current 25 to 30% levels to 10 to 15% levels.

Which car company has an RoE of 25 - 30%?

[amoghchaphalkar]

Originally Posted by smartcat

It's return on equity (RoE).

Given the capital intensive nature of the automotive business: Return on Capital Employed (RoCE) would be a far more prudent indicator to look at instead of RoE.