[TusharK]

Related Thread (Maruti looks to create land bank for dealerships)

According to a media report, Maruti Suzuki is planning to build new showrooms at its own cost and lease them out to dealers. The aim is to absorb a major chunk of the capital costs of its dealers and maintain their profitability.



The new showrooms would be built and owned by Maruti Suzuki using funds from the company's estimated cash reserves of more than Rs. 30,000 crore. The facilities will be leased out to dealer partners, as some might not have the capacity to make large capital investments especially in Tier 1 cities, where property rates are expensive. The operational expenses however will be borne by the dealers.

Setting up a dealership in major cities is estimated to cost between Rs. 5-6 crore. Dealers also have to incur other expenses that include rentals, creating showroom interiors and setting up service workshops. Also, dealer margins have reportedly gone down since modern cars have become more reliable.

Therefore, investing in infrastructure would not only help dealers, but also accelerate the expansion of Maruti's dealer network. The company reportedly plans to setup 100 new dealerships by 2030.

Source: LiveMint

Link to Team-BHP News

[arjab]

If this happens, Maruti will change the dynamics of the dealership business.
Apart from bearing upfront costs, the "psychological" effect on the dealer proprietor of such a move, will be profound.
Setting up a dealership in Tier - 1 Indian cities costs anything between ₹8-10crores taking into account location of dealership, building aesthetics, corporate identity kits, workshop & it's equipment, spare parts, vehicle stocks, IT infrastructure and so on and so forth.
If Maruti bears the lion's share of this, then the loyalty it will command from the dealer fraternity will be significant.

[vikred]

Makes very good business sense for the automaker. But, not so much for the people who run the dealerships though. Once dealers turn into franchises, they will have little say. Remember what happened to McDonald's (The Founder) once they shifted their focus from food to leasing real estate?

[maverickrider00]

I have always felt that an automobile company especially in India should concentrate on SERVICE besides manufacturing as the technicians employed by the dealership are not competent enough or poorly paid and they simply don't care even if it's a very important asset for us. As a car and motorcycle enthusiast, I am simply not satisfied by the service provided by the dealership service centers be it of Indian or multinational companies as at the end part of the service is a technician who has at very limited training of the vehicle. Although they are sent by the
dealership for a few days their training on a new vehicle is mostly hands on in the actual service and our vehicles are their test vehicle. A car or a motorcycle no matter even if it is of the entry level is very precious to the owner and automobile companies should also ensure a trouble free ownership experience besides sales. Hence I feel that every automobile company should appoint atleast two specialist technicians in their own employment to supervise and assist the technicians appointed by the dealership. My point is instead of showrooms, Maruti should have concentrated on the service part of their venture.

[V.Narayan]

With this Maruti is not just a step but five steps ahead of competition. Few assets in India can have greater long term value than a land bank. And they then have the dealer by the neck. This will speed up the demise of at least a couple of marginal OEMs in the Indian market. This is a sensible utilization of its Rs 30,000 crore cash surplus.

[libranof1987]

Very smart/sensible strategy from Maruti. On one hand, they get to invest in land/real estate, which although stagnant now, is not by any means declining over the longer term. On the other, they ensure the "Maruti" experience is constant across cities and regions. Can come in handy as they diversify into Arena, Nexa, Commercial and so on. Third, they can make sure their dealer won't switch to some other manufacturer.

[Slick]

This is a game changer if they are also into Service centers.

Apart from the already mentioned points -

With Maruti, the risk of the company/ A.S.S shutting down is already minuscule.

Though I have seen TATA A.S.S. near my home shutting down thus making it slightly inconvenient for me to get my car serviced.

Imagine if the place was owned by TATA and only the dealership changed. It would build my trust & comfort so much more in TATA.

- Slick

[Karthik Chandra]

One thing that I'm impressed about MSIL is the company's attitude = No complacency and rightly so since India is Suzuki's biggest market.

But I'm equally livid with MSIL for ZERO appetite for risk

Related thread

https://www.team-bhp.com/forum/india...structure.html (Maruti to invest Rs. 15,000 crore in expanding sales network & infrastructure)

[kiku007]

Is Maruti Suzuki an Automaker or Real Estate Firm? An Automaker is sitting with Rs.30,000 Crores and they want to make good use of it in Real estate?

What about investing in the the future of automotive technology, mobility etc.?

[Lalvaz]

Interesting development indeed. So does it mean that Suzuki feels it can make more money by deploying its own funds v/s a dealers funds ? Do they feel that either they will be able to negotiate lower rates for the real estate? Or do they believe that the yield on their real estate investments will exceed the returns if they were to deploy the money in their core business?

Me thinks that Suzuki dealers could just have been given a hike in commissions if Suzuki wanted to make them more profitable. Hence I think there’s more to it than meets the eye. Perhaps dealers are going to be in for some testing times ahead.

[sharktale]

Interesting move by MS. This may reduce the level of say of dealers, and give the company more teeth to tackle "Service related quality & issues" since the dealer will most often be at it's toes for good service, otherwise it may lose the contract.

Maruti may also later leverage it's building for charging infrastructure exclusive to MS cars. This will help them minimize new costs of development, and help retain customers in the long term.

Originally Posted by kiku007

What about investing in the the future of automotive technology, mobility etc.?

Probably, MS believes that the greatest margins lie in volumes, and not developing new tech from scratch.

[GTO]

Originally Posted by arjab

If this happens, Maruti will change the dynamics of the dealership business.

Originally Posted by V.Narayan

With this Maruti is not just a step but five steps ahead of competition.

Well said . One more thing = Maruti will be able to exercise a lot more control on these dealerships, under which the land is its own. If it's not happy with a dealer, it can simply replace him with another. The dealer becomes an easily replaceable commodity. The location remains guaranteed to Maruti.

Seriously, what thinking at this company! Of course, the fact that it has surplus funds in the bank while most others are struggling in India only helps matters.

[Slick]

Originally Posted by GTO

The location remains guaranteed to Maruti.

Exactly what I thought, an example would be the Pizza hut corner at Powai, though now they have moved the corner was known as Pizza Hut corner.

If Maruti invests in some great places, it would also have registered as landmarks.

Added marketing I think.

- Slick

[audioholic]

Originally Posted by GTO

Well said . One more thing = Maruti will be able to exercise a lot more control on these dealerships, under which the land is its own. If it's not happy with a dealer, it can simply replace him with another. The dealer becomes an easily replaceable commodity. The location remains guaranteed to Maruti.

Completely agree with this. It will avoid any sort of lobbying by the dealer fraternity and will give the company more control over the dealers. Currently, I believe MS already has superb control over dealers, especially when it comes to handling escalations and complaints. The advantage I see here is that it will give opportunity for enthusiastic individuals to run such dealership with a lesser setup cost and probably give a better experience to people rather than a cash rich person investing X amount and employing Y people and expecting some returns out of it. The owner of a conventional dealership can be a businessman having multiple ventures who would not be able to give focussed attention to the dealership alone, and to a deep level. If this model changes, it will definitely give opportunity for a wider bunch of people to compete and offer a better customer service as well as uplifting the image of the company, which otherwise can lead to them being replaced by another bunch to run the show.

The other side of the story is, what happens to the existing dealerships. Will there be some buyout by Maruti and then the dealer becomes the operator? And also, is there really a scope for expanding wrt dealership count for a brand like Maruti?
And the last thought, why on earth cant a low volume company like Fiat or Nissan adopt this model and prevent issues to customers due to dealerships shutting down? Is it a big deal to do this especially in smaller towns perhaps in those having higher customer base?

[arjab]

Originally Posted by GTO

Seriously, what thinking at this company!

Ironically, many years back, the manufacturer to think loosely along these lines was Tata Motors. It tied up with the Jardine group of Hong Kong to setup the Concorde chain of dealerships.
The objective was two fold: establish a Concorde outlet in all major cities as a benchmark Tata outlet and give competition to independent dealer franchises.
Second was to leverage the joint entity's financial reserves & extend working capital assistance to dealers who were genuinely struggling with capital requirements.

Sadly, apart from setting up a few Concorde outlets , mainly in South India, TML's initiative lost steam. Even the strategy for the Concorde's got muddled up. From what I hear, now they are taking a serious relook at the Concorde business again - and ways to utilise them fully. Remains to be seen, of course, what finally transpires.