Profit Margin on Selling Cars: 6% or Less?
News
Have you ever wondered about the inner workings of a car dealership? A recent YouTube video by Pranay Kapoor offers a revealing insight into the business model from the perspective of Aryaman Thakker, executive director of Group Landmark—India’s largest car dealership network.
Car Retail Business: High Turnover, Low Margin
Thakker begins by painting a picture of the glamorous side of the car business, complete with fancy showrooms and impressive vehicles. However, he quickly shifts gears to highlight the demanding sales environment that lies beneath. He describes car retail as a ‘high turnover, low margin’ business.
The Two Arms of Car Business: Sales & Aftersales
Car dealerships, explains Thakker, operate on two distinct arms:
- Sales: Responsible for the distribution of new cars and typically characterized by low margins (6-8%).
- Aftersales: Focused on servicing already sold cars and offers significantly higher margins, averaging 40% gross margin and 18% EBITDA.
Segmental Margins: A Complex Picture
It’s important to note that margins vary across car segments and brands. For instance, mass-market cars may have lower margins than luxury models, but they enjoy higher sales volumes. Ultra-luxury cars can command larger margins but with significantly fewer units sold.
The Service Business: A Moneymaker
Thakker emphasizes that the service business is where dealers truly make their money. Landmark Group’s experience bears this out; their service business enjoys substantial margins, on par with the sales side. This despite the group being an asset-light organization, leasing most of its dealership properties.
Landmark Group: A Journey from Honda to Public Company
Originating in Ahmedabad, the Thakker family began with a Honda dealership. Over eight to ten years, they expanded across Gujarat, eventually going public and establishing a strong presence in multiple Indian states and cities.