Have you ever wondered how car dealerships function? How they make money and what business goes behind the scenes? In a recent YouTube video, the executive director of India’s largest car dealership network explained the business model in detail. More interestingly, the bossman stated that the profit margin on selling cars is only 6%! It is the service business that makes money.
This video was shared by Pranay Kapoor on his YouTube channel. In it, the YouTuber talks to Aryaman Thakker, the executive director at Group Landmark. It is the largest car dealership network in India. It operates dealerships for as many as 11 brands across the country. These include Honda, Renault, BYD, MG, MG Select and more. In the luxury segment, the group operates a Mercedes Benz dealership as well.
Thakker starts by talking about the glamorous side of the car business. Fancy showroom, fancy cars- everything seems interesting. He, however, adds that a hardcore sales business environment lies behind all those. He describes car retails as a ‘high turnover, low margin’ business.
As obvious the car business has two different arms- the sales and the aftersales. ‘Sales’ is about the retail distribution of new cars and ‘ aftersales’ is about catering to the service demands of already-sold cars. These differ sharply with their margins.
Thakker then reveals some shocking numbers in the video. He says that the margins in car sales are quite low. According to him, margins in new car sales can be in the range of 6-8%. He also adds that dealers may sometimes get volume-linked incentives and special deals for bulk orders. The dealer can benefit once it achieves a certain scale.
Thakker also states that the margins vary across segments and brands. For example, a mass-market car may give slightly less margin than one belonging to the luxury segment. But, the dealer there will have bigger volumes to play with. The ultra-luxury segment can be more generous with margins, but the volumes there will be much lower. The 6-8% mentioned above is from a very broad perspective.
Later in the video, Thakker talks about the service business. It is clear from the conversation that the service business is what brings money to the dealer. Thakker says that for Landmark Group, the service business typically gives a gross margin of 40% and EBITDA ( Earnings Before Interest, Taxes, Depreciation, and Amortization) margin of 18%.
He also states that Landmark Group is an asset-light organisation. This means they don’t own the dealership real-estate or properties. Instead, they take them on long-term lease. The group now runs 140+ outlets pan India. Of these, they own just two. He says that the service business in most cases, is as capital-intensive as the sales business.
In some cases, the cost factor may be a little less, as the dealer may not have to invest in prime real-estate for workshops. Even the infrastructure requirements are different.
The Thakker family is originally from Mumbai but started their auto retail business in Ahmedabad. The first dealership the group opened was of Honda. Thakker says that for the first 8-10 years, they only dealt with Honda. In the meantime, it opened Honda dealerships in more cities in Gujarat. Today, Landmark Group is a public company, with presence in multiple Indian states and cities.
Since the time of going public, it has added three new brands to its portfolio- Mahindra, MG and Kia- in quick successions. In the last two years, the group has opened over 40 outlets, including but not limited to these brands. Thakker says that the three brands have been doing really well in terms of sales.
Later in the video, Landmark Group’s executive director talks about their top three brands in terms of revenue contribution. He says that Mercedes Benz stands first, followed by MG and BYD respectively. These, he says, are based on numbers from the last quarter. He adds that Landmark Group contributes to over 20% of BYD’s national volumes.