[Turbanator]

As per knowns in the trade, MB India is planning to do a major change to their sales operations. Originally planned for July, this has got pushed to September because of Covid.

Under this alternative model, MB India will fix the net prices (Ex-showroom) all across India and there will be no negotiations. Periodic offers if any will be available clearly.

Dealers will work on Zero Inventory and all Cars will come from the factory against a firm order of the customer. Not aware if these will be invoiced directly from MB India to the customer or the dealer for onward billing but since they want to take off the complete burden/ expense of dealers on the finance, it's quite possible that they can do the direct billing too or ask full payment in advance.

At any point, the dealership will have only a few display/ test-drive vehicles but no cars for deliveries. Manufacturers have realized that it's very difficult to make money in capital heavy business. So, many dealers have to pass high discounts, this creates an imbalance in the market. Inventory light is the way to go.

It Will be good to hear the views of others, I fully support such a decision if it happens.

[BlackPearl]

Originally Posted by Turbanator

At any point, the dealership will have only a few display/ test-drive vehicles but no cars for deliveries. Manufacturers have realized that it's very difficult to make money in capital heavy business. So, many dealers have to pass high discounts, this creates an imbalance in the market. Inventory light is the way to go.

I think this will work well for aspirational brands as most people plan a lot before buying a Merc, BMW, Audi or JLR vehicles. But for those brands which see a lot of sales and people might need to buy a vehicle urgently, this model will be counter productive.

[PrideRed]

Originally Posted by Turbanator

At any point, the dealership will have only a few display/ test-drive vehicles but no cars for deliveries. Manufacturers have realized that it's very difficult to make money in capital heavy business. So, many dealers have to pass high discounts, this creates an imbalance in the market. Inventory light is the way to go.

It Will be good to hear the views of others, I fully support such a decision if it happens.

As a buyer, one of the big draws for buying a German marquee is discount that is offered. Higher the range, more the discounts . If the discounts are going to be inline with what we are seeing today, I don't see a concern.
Also If I pay full amount upfront, who is responsible for damages while in transit or at dealer level? Will Dealer just wash off his hands and put the us on MB? Dealer is entitled for a fixed commission on sales and make rest of the profit in service and may be accessories?

[Chetan_Rao]

Originally Posted by Turbanator

...

It Will be good to hear the views of others, I fully support such a decision if it happens.

In a factory-to-customer 'zero idle inventory' model, will there be enough incentive/margin for a dealer to have a sales division to act as an intermediary/touchpoint, or are they better off just handling services in a franchise model and let the manufacturer deal with sales?

[V.Narayan]

Originally Posted by Turbanator

Dealers will work on Zero Inventory and all Cars will come from the factory against a firm order of the customer. Not aware if these will be invoiced directly from MB India to the customer or the dealer for onward billing but since they want to take off the complete burden/ expense of dealers on the finance, it's quite possible that they can do the direct billing too or ask full payment in advance.

At any point, the dealership will have only a few display/ test-drive vehicles but no cars for deliveries. Manufacturers have realized that it's very difficult to make money in capital heavy business. So, many dealers have to pass high discounts, this creates an imbalance in the market. Inventory light is the way to go.

Sensible move from point of view of both MB and the dealer. The inventory carrying cost in India, at rates of interest that a mid-sized business can access, are so high that the dealer has to earn money through extras to keep his head above water. Contrary to what most Team BHP members may believe a car dealership is not an attractive business in terms of return on investment.

I cannot judge what impact this will have, if any, on dealer service levels and attitudes. As member @PrideRed correctly questions - who carries the can for damage in transit? I assume MB will address that.

[haisaikat]

Zero Inventory or Just in Time production is something that Toyota has perfected over ages and they are known to make hefty profit not only as OEMs but also to dealers.

I think the key to this model's financial success is the sale of high value high margin assets, so that volume sales like mass brands is not always needed to survive.

Damages should be covered by transit insurance whose premium is part and parcel of the final car price.

[sampadroy]

Originally Posted by Turbanator

At any point, the dealership will have only a few display/ test-drive vehicles but no cars for deliveries. Manufacturers have realized that it's very difficult to make money in capital heavy business. So, many dealers have to pass high discounts, this creates an imbalance in the market. Inventory light is the way to go.

It Will be good to hear the views of others, I fully support such a decision if it happens.

This Sales model would have been a hit in the Pre-Covid times, that too if the ex-showroom prices were correct and justified as per the models, which isn't the case now.

The Luxury Car Market is already down and badly affected and during such times of uncertainties, I don't think people would be keen on spending their hard-earned money on such "already" overpriced cars. The situation is extremely dynamic and now after the 2nd wave of Covid in India, people are more careful about their expenses and would rather prefer having more cash in hand.

Just like how Mercedes is trying to make more profits and also save the dealers from the financial liabilities, the customers from their end and point of view would also want the same too, that is to save as much as possible.

Speaking frankly, India is a land where MB India and all the other luxury car manufacturers sell 'Discounts' first, and then the car.
If the periodic offers are the same as the Dealer Discounts which we see today during the peak seasons, this model might work and won't be a big concern for the customers or Dealers or MB India.

If not, then quite naturally Mercedes would be losing a lot of sales this year. After all, money doesn't come for free to anyone and discounts are what the entire luxury car market operates upon!

A Mercedes previously selling at an avg. discount of 10L and now suddenly at the exact ex-showroom prices, Best of luck Mercedes, India will now have a different story for you.
Indian customers aren't fools and Indian customers look for "value" first, be it a Maruti or a Mercedes.

[condor]

Originally Posted by V.Narayan

I cannot judge what impact this will have, if any, on dealer service levels and attitudes.

This move looks to help level the playing field at the sales level. So beyond that, the service quality and relationship management could be key for one dealer to get ahead of another.
Do you think this would be the case, or any other factors that may come into play ?

[hridaygandhi]

Bad short-term decision, but good long-term decision.

10% off on the on-road price has become the norm with these German marquees. Since customers expect these by default, the dealer at times must be hardly making anything from the car sale in itself. The profits must be coming from warranties, services and accessories.

The new model will mean MB dealers may not have to sell a car just because it has been lying in their inventory for a while. So in the short term, people are likely to move to BMW and others.

We all know what discounts did to Audi right? As we start seeing more BMWs and others on the road, MB will be able to strengthen its flagship image even more. This in the long run, will help bring back sales because the bragging right/snob value is a big draw in this segment. And thanks to discounts, other brands will lose that touch and MB will remain the iconic 3 pointed star.

This of course if the discount model changes, if MB starts offering the same level of discount from the company itself as right now (which is more likely to happen as nobody wants to lose sales), it will just remove disparities at dealer level and drive down their holding cost.

[sampadroy]

Originally Posted by Chetan_Rao

In a factory-to-customer 'zero idle inventory' model, will there be enough incentive/margin for a dealer to have a sales division to act as an intermediary/touchpoint, or are they better off just handling services in a franchise model and let the manufacturer deal with sales?

Indeed a good point!

Correct me if I'm wrong.
Aren't the Dealer profit margins a part of their (dealers) working capital?

Practically what I can see is that MB India is completely taking away these Dealer margins in sales from the dealers by enforcing Direct Invoicing from MB India, itself and in return maybe providing commissions on each sale to the dealers.

Now the question is whether these commissions would be good enough for a dealer instead of the large volume sales the dealer used to perform before?

If I am not wrong, a large chunk of the Dealer's working capital does come from the volume of sales he performs, of course along with the various other after-sales services he performs too.

[navpreet318]

The Indian market is driven by sentiments to a huge extent. Discount is one of the major sentiments which drives sales. Major customer base has now become disloyal to any particular brand. They will take the plunge if the discount is good.
This is what drives the volumes in India.
Just see the manner in which sales of any particular luxury model which is in low inventory/low discounts plunges. People shift to other brands or models which have healthy discounts.
Mercedes has a brand value higher than the rest which is true but it is supplemented by the fact that they try to match or give a value for money proposition. A person is willing to give a certain amount of premium for a Mercedes over say an Audi of similar category model.

Removing inventory completely will be a boon for dealers as it can be clearly seen that multi-dealership dealers were the ones thriving. Infact that is the only acceptable model for getting into a premium car business as of now.

But it will remain to be seen what kind of margins and discounts will be offered by the company. It has to be comparable else the sales will dip.
Once sales dip, the sales team will run helter skelter and eventually turn to the strong and volume driving dealers with deep pockets and solid CC limits. "Sir ab aap hi batao kya karein".
Dealer will then smile and say sir offers are needed.
Sales team: what kind of offers.
D: Deep Discounts
S: What kind of numbers do you assure with this much discount.
D: X of this vehicle. Y of this vehicle. Z of this vehicle.
S: sir if numbers are not achieved then?
D: sir you bill me all these vehicles today with this much discount. I'll show you retail.
S: will go back to the management with the proposal from a handful of such powerful dealers. The management under pressure from left, right and center will Buckle with conditions.

The vehicles will be billed to the dealer. The conditions will be "met".

And there you have it. Everyone happy. Including the customer.

[sampadroy]

Originally Posted by navpreet318

The Indian market is driven by sentiments to a huge extent. Discount is one of the major sentiments which drives sales. Major customer base has now become disloyal to any particular brand. They will take the plunge if the discount is good.

And there you have it. Everyone happy. Including the customer.

Very well said, Sir! Exactly what I was thinking!

A luxury car buyer in India is attracted by the "discounts" he's being offered first and later comes the car. "Value" is the keyword here and these luxury cars only become a good VFM purchase when hefty discounts are offered during the peak seasons.

If the company discounts are the same as the Dealer discounts, then good, or else MB India is digging its own grave and making a clear way for other manufacturers such as BMW, JLR, and Audi (maybe).

Also in such dynamic and uncertain times (thanks to Covid-19), these manufacturers should offer more discounts in order to attract the already value-conscious customers rather than removing all scopes of negotiation, plus also atrociously increasing the ex-showroom prices!

[kiku007]

Mercedes Australia proposed the fixed-pricing model from 2022 for all models and I don't think people are too happy about this. At times the cars are discounted at up to 20% and why give away that choice?

I personally would like to have the option to negotiate and I'm keen to see how the market responds. Is it really worth the trouble for Mercedes India to try this expensive experiment that may disturb their leadership position?

Does this mean that a company like BBT cannot get a sweet deal out of Mercedes India in the future?

Honda Australia is going ahead with the fixed-pricing model but they are marginal played and no one really cares.

The below article provides some good thoughts on this and some of those may be relevant to India.

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https://carconversation.com.au/opini...-pricing-model

This isn't a new process, we have seen Tesla operate with a fixed pricing structure, although it doesn’t contract delivery and aftersales out to a dealer network, instead, the US marque manages its boutiques and service centres which interact with customers after purchase.

Mercedes-Benz Australia has dipped its toe in the water with its first all-electric vehicle, the EQC 400, which is sold directly to customers via an online sales portal at a fixed price.

So will applying the same philosophy across its entire portfolio push keen negotiators into the arms of rivals?

We suspect Mercedes will shed customers if it doesn’t realign its pricing structure to ensure the deals are sharp. Those who are shopping in the premium segments or those who have done so previously know the mark-up on the majority of these models is substantial. Dealers have room to manoeuvre in the pursuit of a sale, to an extent, we regularly encounter evidence of buyers securing discounts of up to 20 per cent from premium marques. Very few pay the price on the sticker.

As Mercedes-Benz has grown its sales in Oz, it has increasingly acted like a mainstream brand chasing numbers often with aggressive discounting. The strategy has been a successful one, Mercedes has become so popular it regularly features in the monthly top ten brands in terms of volume.

It’s unlikely Mercedes will realign pricing to fend off its rivals as, under the agency model, the brand would only be making the switch to improve the revenue column on the balance sheet. Compounding this, Mercedes will own the stock instead of the dealers effectively removing one aspect that motivates dealers to move metal.

According to Mercedes, the change is designed to “improve the customer experience”. We’re not sure how identical pricing across all dealers will achieve this.

While it can occasionally be difficult, the current system of dealers acting autonomously allows them greater freedom to negotiate. Adhering to fixed prices will handicap Mercedes dealers when trying to sway those cross-shopping models from BMW and Audi.

If BMW dealers are willing to discount a 3 Series, but Mercedes salespeople are tied to retail pricing on the C-Class, the three-pointed star is going to lose some of its luster. For some buyers, the right deal is almost as important as the right car.

Tesla has enjoyed a good run with fixed pricing because it had something unique, something no brand could match. That’s an advantage Tesla won't hold forever though, in time, rivals will be pushing Tesla to sharpen its pencil.

Despite the badge, premium brands have grown to the point of acting in concert with the wider market. Brand’s that are successful here rely on dealers finding the right deal for their customers. Stepping away from the established practice won't be easy.

Those who have enjoyed generous discounts on previous purchases will find the new paradigm untenable. Knowing Mercedes dealers won't have any wiggle room on price will have an impact on sales, especially for those suited up in rival showrooms.
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[dark.knight]

Originally Posted by Turbanator

It Will be good to hear the views of others, I fully support such a decision if it happens.

That's my business model, zero inventory, all order based on 80% advance, so naturally I support it.

Not a fan of MB by a mile but they have taken the first step towards ending fish market bargaining in the high end car market, hope Audi and BMW follow suit. Discounts will be issued based on overall demand and factory backlog (if any).

That having been written, I smell a rat here, since the past 5 years, the prices of the big 3 have skyrocketed, before that the starting prices were in the sub 40L range on-road, the next range was sub 55L and the executive limos were sub 90L, today prices are a minimum of 25% more, if not 33%, all within 5-6 years. A price correction is essential (5-10%) to make the consumers not want to bargain to begin with, because I know discounts were given to the tune of 10L+ without much bargaining on even entry level models last year.

It's basically Merc testing the waters with this plan, ultimately consumer demand will be the turning point, because today the consumer is king even more.

[Reesnat]

Heavy discounting is actually bad for the end customer as well. What people all over the world (India or not) really want is to pay a fair price and not feel like they have been short changed.

If the manufacturer can price a product as low as possible from the get go and then promote its value and not offer any discount at all to all customers, this is actually a win for everyone. This model is what makes the budget smartphone market tick.

Nobody likes to pay more for a product vs another. Bring this parity and everybody is a winner. This concept can be applied to anyone from Maruti to Mercedes in my opinion.

Indians in the luxury segment have become accustomed to discounts because they have seen how a car they paid 1Cr for was sold for 90 to their friend 1 year later and that friend brags about it, this is a horrible feeling for the original owner. What I’m saying is sell it for 90 on Day 1 and don’t discount at all.