[thechinmay]

Originally Posted by sampadroy

To sum it up, in my frank opinion, the real point of the exercise is to maximize profits for MB.

Absolutely. Lower dealer margins + no discounts on already inflated prices = more profits for Mercedes.

IMO this strategy might work for products with no direct competition like the Maybach and G Wagen and not the 'volume' sellers like the A and C classes which have very competent alternatives.

With lower margins, dealers will have to start cutting overhead costs, which might lead to a sub par dealership experience. I'm also surprised that dealers are not up in arms about this. They will have to contend with the double whammy of lower volumes (assuming prices stay constant) and lower margins.

[OnePM]

Originally Posted by V.Narayan

Contrary to what most Team BHP members may believe a car dealership is not an attractive business in terms of return on investment.

Cannot Agree more. Automotives Dealerships are no longer a profitable business. I can vouch for this as i have been in the same business for a large Automotive Giant. The biggest thing killing dealers is Interest. OEM also Charge interest the moment a truck is billed from the plant. This is what many Manufacturers had waived off during the 1st lockdown and consequently were going gaga over it, whereas it was only something very logical and needed, so as to protect dealers.

Profitability is only left for very old dealers who have depreciated assets. By 2019 we had stopped any dealer who was going through the rental showroom route. Yes Rent/Lease space for showroom/Warehousing a big killer. Post Gst the cost of billing a truck load went by 28%, as GST is prepaid. In totality a Dealer had to raise 28%x No of average loads maintained as stock, amount of funds post gst for smooth operations.

As one of my dealers often quoted, "Being with a Manufacturer is like a marriage in which you neither feeling like continuing, nor feel like quiting."

[meto]

Today we shop around and haggle with multiple dealers because we can certainly pit them against each other for discounts. By changing into an agency model, Merc is taking the negotiating power out of consumer’s hand. I don’t follow this segment, but I doubt there are many consumers in this segment who does a cross-brand shopping. If I want to buy a Merc, I don’t think many will venture out for a BMW or Audi for a test drive (I might be wrong). Considering the average discount to be 10L, if no dealers are giving any discounts, the consumer will likely cough up the extra cash and wouldn’t bother a lot. We bargain only because we know the discounts are available. There wouldn’t be any sales dip, but on the other hand the prices would become a lot more transparent. Dealers don’t make a lot of money for new car transactions in most cases, their money minting press is their service, so I doubt this will have any impact on them. It will also smoothen the customer experience, and this might actually be a good strategy for a luxury brand like Mercedes to maintain their desirability factor.

[kkunal.shah]

Even if MB chooses to bill directly which is difficult in my view as each customer will become a direct customer of MB & expose MB to various factors, Dealers would still get commission for each unit with multiple slabs across segments.

Dealers won’t maintain showrooms just to sell warranties & insurance, their role in converting a sale has to be compensated.

[toothless]

This is quiet an interesting development. I think it will have a big impact on 'buying' cars online as well. If a buyer does not has a reason to negotiate on the price with the dealer, probably wont have a real reason to go to the showroom other than for a test ride. That too only if someone is really unsure of the car.
I thing MB is trying to get get ahead of the game and will possibly push for sale of cars online in a big way, similar to Tesla.

I do really wonder what will happen to the pricing of their entry level cars though. Without a revision in prices, their sales would surely tank in absence of any discounts at all. So a downward revision of prices by 3-5L on cards for the A-Class and C-Class?

[sampadroy]

Originally Posted by toothless

I do really wonder what will happen to the pricing of their entry level cars though. Without a revision in prices, their sales would surely tank in absence of any discounts at all. So a downward revision of prices by 3-5L on cards for the A-Class and C-Class?

Cars like the A/CLA/GLA and also the C used to and still do sell at an avg. discounts on 10L+ in the peak seasons such as CY/FY End.

These cars are almost overpriced by 20-25% frankly and the prices have increased exorbitantly in the past 3/4 years without any real justification. Every new quarter the prices are again increased by 50K, minimum, and this is a new trend which has been started by these luxury carmakers and MB is no different. (Latest example, the GLA and its price increment from July 1st, 2021).

Cars like the A and GLA belong to the 30-35L (ex-show.) strata and the C class belongs to the 38-42L(ex-show.) strata if purely seen value-wise.
With the ever-increasing current prices of these models, one should only ask for a discount above 10/12L, at least. Then only the money paid for these cars can be "merely" justified to an extent.

I don't think a price reduction of 3-5L of such cars would make any difference to their value proposition because they will be still very much overpriced. Yes, of course then MB might be able to match the competition prices because anyway MB cars are almost priced 3-5L higher than the competition from the rival brands. (Fun fact: The rival cars are also severely overpriced!)
If the prices of such cars are reduced by 8-10L, straightaway (Mercedes will never do that), then only the prices can be somewhat justified.

Either you price it well in the first instance and let it be like that or else you give high discounts. It is as simple as that and this is the real Indian Market Philosophy!
Now, let's see what MB India does...

[Altocumulus]

I feel this is a very gutsy move which can go either way.

The premium segment or the Big3 in India i.e MB, BMW and Audi, I somehow think runs on discounts and that's what make them attractive. This is an aspirational segment, a status symbol and it doesn't matter which brand it is for most.

90% of the people buying these cars walk into showrooms expecting heavy discounts. Unless you are a diehard fan of a particular brand or a specific model, prospective customers scout all the brands to check where they can get the maximum out of their money.

Keeping the above in mind, unless the other brands go down a similar route, Mercedes may end up losing a lot of potential customers. At the end of the day, money is not from sales but from service. The less you sell, your secondary income decreases.

[sampadroy]

Originally Posted by Altocumulus

Keeping the above in mind, unless the other brands go down a similar route, Mercedes may end up losing a lot of potential customers. At the end of the day, money is not from sales but from service. The less you sell, your secondary income decreases.

I think and I sincerely hope that the other 2 brands (BMW and Audi) would not end up following the same strategy if they have some real "Gray Matter".

Rather these two brands should continue the way they're doing business and make use of this great opportunity gifted to them by MB India. They should make use of the prospective customers which MB would be ending up losing and should offer good discounts to lure them in, as much as possible!
The real fight would be between BMW and Audi and honestly, this would be a God gifted time for them to shine and also increase their market share, immensely, especially Audi. (We all know why...).

Mercedes would lose a lot of buyers and these buyers would be then divided between BMW and Audi, depending on discounts and various other factors.

If the other 2 also follow what Mercedes is going to implement, it would make no sense at all because now these 3 are fighting among each other WITH PROVIDING DISCOUNTS, and later these 3 would be again fighting among each other WITHOUT PROVIDING DISCOUNTS. Hence, it would be the same game at the end of the day. Nothing in real would change!
In fact, if all these 3 follow the same strategy as MB, the whole Luxury Car segment in total, would end up losing a lot of prospective buyers (because of being overpriced and no substantial discounts) who would then end up buying more VFM and less expensive cars such as the Octavia, Superb, etc... Therefore, a cumulative loss for all 3 brands without any real justification.

In Hindi, we have a common term for MB, "Bali ka Bakra, a.k.a Scapegoat". So let MB be the Bali Ka Bakra for now and the other 2 should make use of this situation as much as possible. This is an enormous opportunity for them to be what they couldn't be in the last 7 years, no. 1 in the Yearly Sales Chart, a great matter of pride!

If I were Mercedes, I would have felt like I'm am taking an early retirement and sacrificing my "star"-rated supremacy for the kids in the business.

Now, let's see whether these kids (Audi and BMW) have a Dimaag or not...

P.s. Didn't talk about these 3 brands reducing their ex-showroom prices to the real justified prices because that's never going to happen .

[Sahil]

This zero inventory, zero discount model is great in theory. However I’m skeptical of its implementation especially when the competition might not follow suit. How is MBIL going to them compete ?

While I’m the chief negotiator for my family and close friends too now since I have managed to get some sweet deals based on my dealer relations, yet even a person like me would prefer a more realistic fixed price than haggling. Haggling is bad for my anxiety

The only way this can work is if there is a major price correction. Atleast to the tune to 10-20% because that’s the sort of discounting that goes on. It at times goes even higher! The current pricing levels have been built with a good cushion to discount based in monthly offers.

Another solution MBIL could take is every month put out the discount on their website. Let customers book token amount there and execute deliver via the dealership of choice.
Although this is the best option, it is tricky and MBIL does not offer the same discounts and incentives to dealer across all regions. A city where there are more than 2 dealers always has better discounts and support as they are under cutting each other. This is supported by MBIL’s target incentive. Sometimes dealers will pass on all their margin to get the sale in anticipation that they will earn a bigger chunk from the incentive margin.

I hope MBIL figures this out not just from a dealers standpoint but also customers. At the end of the day, customer must win!

[veedub89]

This strategy may have a massive pitfall for the dealers.
For the most part car dealerships are capital intensive. If you have boatloads of money then this business is for you. The barrier of entry into the car dealership remains high due to so many money sapping avenues like new car inventory, spares, used car inventory (for some dealers), rental space, high employee strength etc.

Majority of this money pit, as you can imagine, stems from keeping new cars in stock.

If you remove that from the equation, then you effectively reduce the barrier to entry into this business. Potentially, anyone can be a dealer now. Well not anyone, but you get my drift.
Pretty sure most dealers don't want more competition.

[vikash49]

Makes sense. Presently, discounts vary greatly between dealers and cities... forcing buyers to hop around here and there and engage in lengthy negotiations...which don't always pan out.

An efficient and frugal system with better and uniform pricing direct from company without all the flab from dealers will increase buyer confidence and result in better sales. Win-win for both.

[GTO]

Originally Posted by a4_attitude

I would like to take up an example of Merc E 200 which had a sticker price around 70-72 On road Delhi, a friend of mine bought it for 58 with Hp reg. My point here are they going to come down with new Sticker, which seems impossible

Second Perspective - Manufacturer, Mercedez Benz
If manufacturer want to ease dealers it means manufacture want to increase his own profit or increasing his control over how he want to run the business around

You make an excellent point on the discounts. I feel that dealers will end up with slimmer margins after this? After all, not every customer negotiates or is good at negotiating (I suck at bargaining and prefer fixed-price shops). While a few customers would get 8-lakhs off a particular model, there would be an equal number buying the same car at just 3-lakhs off (therefore, 5-lakhs extra for the dealer).

Regardless, Mercedes is doing the right thing. I cannot think of a single luxury brand (cars, fashion, watches, hotels etc.) that remained high-end after discount addiction. Some handbag makers actually burn their leftover stock, instead of dumping it in the market at discounts. And all the great brands which have remained premium for decades don't discount.

Rolex has also stopped discounting in India. I mean, they still do a little bit, but not like the massive discounts of 5 -7 years ago. The company keeps a close eye on what its dealers are doing.

[V.Narayan]

When a top end brand does not discount it tells the buyer the degree of confidence the OEM has in its product and the product's ability to deliver bang for the buck - quality, reliability, exclusivity etc. One reason I didn't go for an Audi twice over was because my missus, who can't tell a Maruti from a Mercedes, piped up that even she is familiar that the Audi is a popular car. There is a customer for the heavily discounted LVMH product* and there is the customer for the LVMH.

*this is a facetious example as LVMH never sells on a discount, not at least to my knowledge.

[thechinmay]

While Rolex and LVMH are examples of Veblen goods (products in which the demand of goods actually increased with their price), they are absolute luxury items which are built in limited quantities with no regards to cost and employ the finest craftsmanship. They are symbols of excess and serve no practical purpose at all. The only Mercs that are anywhere near these in terms of stature is the Maybach and the G Wagen - because they don't really have any direct competition.
An A class with a 1.3L Renault engine and sub par sound insulation is hardly the last word in luxury or exclusivity.
Someone who wants a Rolex over an Omega will pay the price difference without a second though. The question is, will someone who wants a C Class pay a ~15L premium over the 3 Series (new gen coming in, plus discounts on the 3 in regular times, plus already premium Mercedes pricing)? I think not.

[petrol_power]

There are many industries which quotes a very high MRP and then finally sell it at a lower price. I have seen this mostly prevalent in B2B government product sales. But Automobile industry has been a very peculiar one in which the high discount % culture is prevalent in only premium segment where as it does not happen much in non-premium segment. Periodic/ seasonal discount is fine, but permanent discount is attributed to industry specific.

Now one company trying to be different from industry standard will back fire for sure, unless they try to do something different. Price it lower and competition will claim that Merc products have a lower quality and hence lower overall costing. Price it higher, then customers may get irritated why Merc is not giving any discounts, whereas other premium brands are ready to "respect" him and give him discounts. In fact there are many lessons/ session in sales for doing a "negotiation", in which customer would feel that he pulled the down margin from the Mercedes to his pocket, where as reality would be that the sales person is giving discounts in phases.

So Mercedes will have to think through and spend time in creating structure/ process/ training to staff to convince the customer. Any which way, I am seeing this for the first time, one single player in the industry trying for a totally opposite business model, completely different from market players. And this being the brand with maximum brand pull in India mid luxury segment, they may be able to create a new sales model.