[Nikhilb2008]

Well, market forces to play their role. How else do you think the JC Road dealers have survived so long?

BTW, if the tyre that was quoted to you was a Dunlop and was for 720, be careful. As you know Dunlops are not being manufactured in India. They are all imported. There is no official support for these tyres. Lots of fakes coming in and seconds as well.

I still dont know how to spot a fake though. The obvious things would be to look for smudging of company logo, name, manufacturing date, etc..

[Raccoon]

Originally Posted by Nikhilb2008

BTW, if the tyre that was quoted to you was a Dunlop and was for 720, be careful. As you know Dunlops are not being manufactured in India. They are all imported. There is no official support for these tyres. Lots of fakes coming in and seconds as well.

Thanks, I will of course scrutinise the tyre under an electron microscope before actually buying. But when I quickly inspected the tyre, everything seemed to be alright. No smudging or anything. Now that you mention it, I will also compare the tread pattern and other things with tyres from other shops. Beyond this, I dunno how I can spot a fake...

If there is no official support for Dunlop, then who gives the warranty? The shop?? I was told the tyre has a one year warranty... like all other tyres.

[anurag_p80]

Cartels* — Arrangement(s) between competing firms designed to limit or eliminate competition between them, with the objective of increasing prices and profits of the participating companies and without producing any objective countervailing benefits. In practice, this is generally done by fixing prices, limiting output, sharing markets, allocating customers or territories, bid rigging, or a combination of these. Cartels are harmful to consumers and society as a whole because the participating companies charge higher prices (and earn higher profits) than they would in a competitive market. Source: COMPETITION AND DEVELOPMENT: Glossary of Terms and Abbreviations: International Development Research Centre)

@Nikhilb: No offense, but it certainly does fit the definition, whether done by producers or dealers. Fabulous explanation though. IMHO, this kind of price fixing allows the dealers to earn super normal profits (profits they would not earn in purely competitive market). And just btw, if what you say about Indian mentality is true, we would not have any markets for premium retailers (groceries, for example. Same thing aint it, just a price difference), multiplexes (same movie, aint it?) etc. I just want to say that customers anywhere in the world would pay a premium for a better experience. Also, by fixing a least possible margin by taking the large dealer's case, how will the small guy compete? What is the incentive for the large dealer to invest in customer experience/ relationships?

[WasavaTyres]

Nice writeup Nikhil. I think Ishaan is the only one making decent money selling tyres . I was surprised to read his post when he said "dealers claim that they only make 2-3 % profits" it's not a claim but the fact if you ask me. Plus in B-Towns where the sales of HV (high value) tyres and upsize tyres is less and most dealers sell only stock tyres things get even worse. With free WA /WB and in some cases even N2 being filled for free there's not much room to think it's a handsome return on tyres. A decent set of wheel alignment+wheel balancing tyre changer machines would cost about 14-16 lakhs. Add to it 1.25 approx for a Nitrogen machine. Forget the running expenses, just to recover the costs on this investment the dealer would need to work his backside off.

[Raccoon]

Originally Posted by anurag_p80

I just want to say that customers anywhere in the world would pay a premium for a better experience. Also, by fixing a least possible margin by taking the large dealer's case, how will the small guy compete? What is the incentive for the large dealer to invest in customer experience/ relationships?

Exactly one of the things I also wanted to say! Why would anybody then want to patronise the small shop?? Everyone would just make a beeline for the tyre showroom only! Sorry to say... but all the explainations for this practice are full of holes...

[Nikhilb2008]

Originally Posted by anurag_p80

Cartels* — Arrangement(s) between competing firms designed to limit or eliminate competition between them, with the objective of increasing prices and profits of the participating companies and without producing any objective countervailing benefits. In practice, this is generally done by fixing prices, limiting output, sharing markets, allocating customers or territories, bid rigging, or a combination of these. Cartels are harmful to consumers and society as a whole because the participating companies charge higher prices (and earn higher profits) than they would in a competitive market. Source: COMPETITION AND DEVELOPMENT: Glossary of Terms and Abbreviations: International Development Research Centre)

@Nikhilb: No offense, but it certainly does fit the definition, whether done by producers or dealers. Fabulous explanation though. IMHO, this kind of price fixing allows the dealers to earn super normal profits (profits they would not earn in purely competitive market). And just btw, if what you say about Indian mentality is true, we would not have any markets for premium retailers (groceries, for example. Same thing aint it, just a price difference), multiplexes (same movie, aint it?) etc. I just want to say that customers anywhere in the world would pay a premium for a better experience. Also, by fixing a least possible margin by taking the large dealer's case, how will the small guy compete? What is the incentive for the large dealer to invest in customer experience/ relationships?

No no. In the tyre industry, a cartel would be if Michelin, Continental, Yokohama, Bridgestone and MRF agreed to increase the prices of ALL their tyres by 20% without any reason. That would be bad for everyone EXCEPT the company itself.

BTW, super profits? Dude, my dad has been in the tyre industry for more than 35 years. My family has been in it for more than 60 years. Going by your logic, we should have been rolling in money. But we arent.

It's a very very tough business. There is no extra profit at all to be made in this business. Believe me. Very few people in the tyre industry(selling tyres) are crorepatis. I know a few in the Bangalore market and they have made their money elsewhere or by doing shady things(tax evasion, smuggling in from abroad, undervaluing imports, etc..).

In a purely market driven place, you will not have so many dealers. Currently, due to the "protection" offered by the big companies, many people are getting into it. If even this was not there, you would have less than half of the current number of dealers. Which would in turn mean that there would be no way of getting a good quote from one shop and bargaining with the other.

You say that the customer will pay for a premium service? I beg to differ. There are of course many people like that. Enough to keep the big showrooms in business, but 75% of the population is not like that.

You cant compare tyre industry to an FMCG or the entertainment business. A normal person buys tyres once in 3-4 years. How often does he go to a movie? Once in a month? Once in two months? There, volume will compensate. There is a large volume associated with those businesses. Not so in the tyre industry. In the movie business or even the grocery market, you have 1.2 billion potential customers EVERY month. Not so in the tyre market.

And nowadays, good labour too doesnt come cheap.

Originally Posted by Raccoon

Exactly one of the things I also wanted to say! Why would anybody then want to patronise the small shop?? Everyone would just make a beeline for the tyre showroom only! Sorry to say... but all the explainations for this practice are full of holes...

It is not legally binding. That is why you see most small shops selling at 1-2% profit. That is what I am trying to say.

The incentive for a big dealer to ramp up his customer service, etc is to justify the relatively higher cost than the smaller shops. Also, the small shop will give freebies. Maybe WA/WB, whatever. None of the relatively big shops will give it free. An example is the MPP. Michelin Priority Partner. They will NOT give freebies. You pay more when you go there but in return you are assured of good quality tyres, no old stock(generally), 100% gauranteed original stuff and a better overall experience. Of course, if you have a very good rapport with a small dealer, then of course, nothing to beat it as they will treat you like a friend and take a personal interest in everything.

Look, you dont have to believe me. But I dont see anyone complaining abt the MRPs of various products. Why this?

[bigman]

Originally Posted by Nikhilb2008

Cartelisation is when ALL the tyre companies get together and screw the customer. That is not happening here. Until you know what the word means, you shouldnt use it!

.

Thanks for your lesson. I suggest you look at the true meaning of the word. Having studied business, economics and mathematics at postgraduate level I certainly know what it means !

Inflating prices and using underhand tactics to increase prices to make a supernormal profit is not exactly what you expect in a free market. In terms of the underlying commodity in this case (BF Goodrich tyres) the actions of the Ludhiana dealer are in effect inflating prices and comparable to cartel type enforcement.

Anyhow I got the tyre from elsewhere now and the Ludhiana dealer kiss goodbye to the couple of hundred extra he wanted. There are only two BFG dealers in Ludhiana, so it is not rocketscience to work out which one located centrally I am refering to.

[WasavaTyres]

Bigman I think what Nikhil meant was not the literary meaning but it's use in the current context,. Please do not take it to be a challenge to your education in business, mathematics and economics at the PG level

As for the centrally located BF Goodrich dealer, I doubt if he's kissed goodbye to his couple of extra hundreds and the super normal profit. If not you there will be someone else willing to pay the price he's commanding.

[v1p3r]

Originally Posted by Rehaan

MSRP is exactly that.

A Maximum Suggested Retail Price. I guess he needs to understand that.


Also, if he is selling @ MSRP i don't think that makes him a "morally bankrupt / lowlife price fixer" either.

Correct me if i've missed something here...

Rehaan, what you've missed is that we're in good ol' Hindustan. There is no MSRP here. That's an Americanism, and it stands for Manufacturer's Suggested Retail Price.

In India, we have a Maximum Retail Price, which is printed on the package, often in bold, at the time of manufacture. No vendor may sell a product above MRP. If you find someone doing so, you may approach a consumer court. Of course, this sale does not include charges for service, corkage, etc.

Of course, this is OT.

[Rehaan]

Hi v1p3r,

Noted.
That aside, we're saying pretty much the same thing here.

My point was that selling at MSRP/MRP even if noone else is, does not make the dealer a crook -- but bigman has mentioned that that was not his reason for calling the guy a crook, and has clarified.

cya
R

[tsk1979]

I do not buy the 2-3% argument.
For example in Noida even if you bargain hard you will get Apollo Acelere 185/60R13 for around 2700/tire
However in West Delhi, without any bargaining you will get the same tire with bill and warranty for 2400.
So you have a sale price which is 10% lower in West Delhi without any bargaining.
Why so? Competition I guess. I am sure west Delhi dealers are making a profit, which may be 2-3%, which means that the Noida dealer is making a 12% profit, just because he has his shop in an area where no other shops exist for a few kms.

MY friend got Bridgestones from Noida for 2400, and the same tire was available in Gurgaon for 2100, and with bill and warranty. VAT is approx 12% everywhere.

In Ludhiana, we knew a dealer personally, and he used to give us 15-20% discount always, and used to tell us he will sell it to cost price to us. Therefore I believe that dealers make atleast 15% on the MRP

[anurag_p80]

Originally Posted by Nikhilb2008

BTW, super profits? Dude, my dad has been in the tyre industry for more than 35 years. My family has been in it for more than 60 years. Going by your logic, we should have been rolling in money. But we arent.

Dude, you got me wrong. Super "normal" profits. Meaning profits that the dealer won't earn in a competitive market. It might be that 2% is super normal, or 20%. I do not for one second doubt that you being the insider in the business know what you are talking about. It is a tough business, I believe you. The point I am trying to make is this: the practice of dictating a lower cap on the margin by the manufacturer is wrong. That is what bigman is also protesting.

@Wasavatyres: Dude, I would think the use of the term Cartel in the context specified is pretty accurate as explained.

[greenhorn]

AskOxford: cartel

an association of manufacturers or suppliers formed to maintain high prices and restrict competition.

Sounds like whats happening here

[BaCkSeAtDrIVeR]

Resale price "maintenance" is a restrictive trade practise, punishable.

The tyre manufacturers themselves are often guilty of cartelisation while selling to bulk buyers (non-oem - like the state RTCs). They actuall sell to RTCs at prices HIGHER than retail / open market prices.

And reg. the "Showroom / shop" distinction made on page 1, I think that the protection afforded by the rent control laws is in part to blame for this absurd situation.

[WasavaTyres]

Dealer margins in the tyre trade are based on the number of tyres you sell. Alll companies follow a slab system wherein the higher your slab (and SKU) the more discount you get. Dealers are classified like this :
99>150 ......... 200>275 and so on. In delhi if you happen to go to the tyre market behind novelty cinema you will get tyres at much lower price than in karol bagh since most dealers there are into just trading of tyres wholesale and have nothing to do with fitment or associated services.