[ronello]

Originally Posted by GTO

Am sitting on the fence here. On the one hand, I agree with Maruti that there should be a restriction on discounts, otherwise it becomes a race to the bottom for car dealers and many of them will shut down. On the other hand, I see the CCI's POV too.

It's not just Maruti though. Every brand more or less tells the dealers how much is the maximum discount they can give. The only difference is that Maruti is very STRICT about it and monitors the same diligently through mystery shoppers. From Blackwasp's outstanding thread (Behind the Scenes: A salesman's life in a car dealership):

Mystery-shopping; a definite first-hand experience. For this purpose Maruti does a lot of price-break audits done through mystery shoppers wherein if you are able to negotiate for a price with the dealer below what Maruti sets as an audit parameter, the mystery shopper gets a bonus.

[SPARKled]

Originally Posted by bhargavd

Slowly the bigger dealer will kill everyone in the said geography and become a monopoly. Then, neither will he give an iota of discount nor good customer service. He will become too big for the OEM to manage as he has cornered a large piece of the business.

Thats the reason why OEMs keep tabs on discounts. CCI though right in the approach for "free markets" isn't looking at the effects in long term.

I have a different pov on this. When the price of the commodity is the same from the manufacturer, the big dealer will have lower margins on the same car model due to higher overheads so even with his deep pockets he will only be able to at best match, or be competitive with the smaller dealers or have a small run of fire sales, unless he is on harakiri mission to finish himself off. So pricing the smaller dealer out of business is a very unrealistic scenario unless the dealer himself is the manufacturer. Now this is exactly whats happening in the telecom industry. The smaller players who hardly owned any infrastructure or spectrum have all folded or merged with bigger entities owning their own spectrum and infra resulting in some of the cheapest call rates and data rates in the world for us consumers to enjoy.

In the car business the manufacture still decides the price while the dealers just get a cut on selling these cars. The manufacturer has many other ways of controlling their dealers like rationing number of cars going to a particular dealer to ensure that no particular dealer becomes too big for its shoes to avoid bullying the smaller ones and so on. Any way this is a problem with only big car makers like Maruti, Hyundai etc. If a Nissan dealer can give big discounts on the Kicks enabling it to be sold in numbers that are double the current numbers, the car maker will only be too happy.

[bhargavd]

Originally Posted by SPARKled

I
In the car business the manufacture still decides the price while the dealers just get a cut on selling these cars. The manufacturer has many other ways of controlling their dealers like rationing number of cars going to a particular dealer to ensure that no particular dealer becomes too big for its shoes to avoid bullying the smaller ones and so on. Any way this is a problem with only big car makers like Maruti, Hyundai etc. If a Nissan dealer can give big discounts on the Kicks enabling it to be sold in numbers that are double the current numbers, the car maker will only be too happy.

Very true.

Just to add a point, the margin on selling a car is just one source of income during the transaction. Dealers can very well sell it a loss and still make up the money on Exchange, Accessories, Finance, Insurance and this only during the sale of a car. Post Sales (where the margins are even higher) the discounts payback pretty well.

OEMs are dependant on (good)dealers and vice-versa. Rationing as tool on the dealers which do 300+ cars a month doesn't work so much. Arm-twisting works pretty much both ways. This is for Maruti/Hyundai.

For other OEMs, the dealer is actually cajoled to do more sales one way or the other. OEMs themselves are "supporting" dealers in cases where its just 1/2 dealers in the region and not making profits.

But yes, the top 10 MSIL dealerships in India can actually bully their way through in their own regions if given a free hand. Just to overcome this problem MSIL has given cross region dealership licenses to the large dealer groups. Just to have counter weights to the incumbents.

I think I have gone enough off topic from news from CCI.

[bharatbits]

CCI exists inorder to protect customers from wrong practices adopted by businesses. If a dealer adopts heavy discounting from his own pocket he'll stay in business only till his pockets get empty. Or the competition dealer shuts shop. If his strategy was to wipe out competition and then offer zero discounts it would be foolish on the part of the dealer. Because some other brand say a Hyundai dealer will start offering better discounts or more value for money. Bottomline is, all companies are listed businesses and want sales numbers to show in investor presentations and annual reports. They will just lap up such opportunities if present in any market.

End of the day customer is smart and will go the place that offers him the best value for his money. Market forces will adjust accordingly.

[BoneCollector]

Maruti has been fined 200 crores for dealer discount policy by the CCI.

Link

India's antitrust regulator has fined Maruti Suzuki India Limited (MSIL), the country's biggest carmaker, Rs 200 crore for anti-competitive practices related to how it forced dealers to discount cars, the watchdog said in an order on Monday, Reuters reported.
The Competition Commission of India (CCI) in 2019 started looking into allegations that Maruti forces its dealers to limit the discounts they offer, effectively stifling competition among them and harming consumers who could have benefited from lower prices if dealers operated freely, Reuters had reported.

[Shreyas Agarwal]

Personally, I don't mind fixed discounts. Heck, even if cars are sold only at fixed prices with no room for negotiation, I wouldn't mind but I hate one of Maruti's practices which is territorial agreements.

I live in a tier 3 town. We have only one Maruti dealer. Now, that dealer can give however poor a sales experience he wishes he wouldn't lose the sale because he has territorial agreements with other dealers in the state and no other dealer in any other city would sell to you. There are lakhs worth of fines on dealers if they do so.

This is so non-competitive. Basically, he can cheat you if he so wishes, maintain a showroom worse than graveyards, offer no TDs but if you want to buy a Maruti vehicle you only have him as an option. Creating uncompetitive monopolies 101.

Why shouldn't the customer have the choice to buy a car from whatever dealer in whatever city he likes?

This doesn't affect people in bigger towns. Maruti generally has 3-4 dealers and you can opt for one which you deem fit but in smaller towns, you either buy from that particular dealer or buy another brand's vehicle. No other option.

[sanchari]

Originally Posted by GTO

Am sitting on the fence here. On the one hand, I agree with Maruti that there should be a restriction on discounts, otherwise it becomes a race to the bottom for car dealers and many of them will shut down. On the other hand, I see the CCI's POV too.

It's not just Maruti though. Every brand more or less tells the dealers how much is the maximum discount they can give.

I agree. Its not very cut and clear. To play the devil's advocate, in the short term, the customers may benefit with higher discount by a dealer. However, a dealer who has multi-showrooms across cities/states might have deep pockets to offer more discount and make it up on volumes. It might shut down single independent dealerships. Then it reduces the competition and gives the dealer more pricing power and can control both sales and servicing side, leaving people with less choice.

[Hayek]

Delighted with this CCI order. Face the facts - you buy a car from a dealer. Dealers must be free to offer discounts to you, and any attempt by manufacturers to prevent them from doing the same, or dealers to collide with each other to fix prices is a clear violation of the Competition Act. Unfortunately, this has been adhered to more in breach in the past.

Similarly, territorial exclusivity, unwillingness to honour warranty at any service point et al are illegal practices. Of course, overall this may benefit Maruti - since it has such large volumes that it can afford competition between dealers more easily than a low volume producer can. So I do hope that the CCI recognises the difference between Maruti using its dominant presence to dictate terms which hurt consumers, and a smaller manufacturer trying to keep its dealerships alive.