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Published on October 24, 2007

It turned out that many of these businessmen had been approached by car distributorships to become dealers, and they were interested, but none had previously been involved in the auto industry.

It was an informal talk, and there was agreement that their information would not be revealed publicly. However, I suggested that the topic could be educational to others and asked if I could use the facts without revealing names and places, and they agreed.

There was a time when being an automobile dealer was a promising business. You could turn a profit from selling vehicles both directly and indirectly. Dealers could screen customers and extend hire-purchase loans to those with good credit records. Those whose credit was not so good they could pass on to finance companies and pick up a commission. There were also commissions to be made from insurance, as well as profiting from sales of additional equipment like air-conditioners and tinted film.

In the past, customers tended to buy cars from dealerships close to their homes. Today, they look around for the best deals, and these may involve lower interest rates or cash discounts, as well as large numbers of freebies.

In the past, automobile companies did not take such a controlling hand in dealerships. Dealers often marked up the prices of popular models that were selling quickly, in order to maximise their profits. New dealers or those in areas with low purchasing power could also lower prices to attract customers.

These days, automobile companies control the prices, and dealers caught selling below them are punished in various ways, including fines or quota cuts.

Due to the fierce level of competition in the industry, interest rates are now so low that offering loans to customers is no longer attractive to dealers. Instead, the auto companies have their own financing units to take care of customers' loan requirements. Commissions from selling insurance have also disappeared, because insurance is often provided free, as a sales attraction, and the same goes for tinted film. Audio equipment offered as standard these days is also of good quality, so customers rarely want to upgrade a new car's sound system.

Item by item, most of a car dealer's income has vanished.

In the past, dealers could choose their own showroom design, depending on their resources and the size of their land. This helped dramatically in lowering investment, because some used shophouses, while others opted for a showroom only, with little or no service facility.

These days, the automobile companies control showroom concept and design, as well as interior design, an arrangement that opens the door for corruption. The auto companies also designate the size of the showroom, its facilities and its service centre.

Most importantly, dealers in the past had no need to formulate marketing plans. They just ordered the full line-up of models, and when a customer wanted a colour that was not available, the dealer simply ordered another car in that colour.

Today, dealers need to produce a detailed marketing plan stating how many units of each model and in which colours they are planning to sell during a set period. If they fail by no more than 10 per cent, then they might not suffer.

But if the plan goes wrong, there can be big problems. If a dealer plans, for instance, to sell 100 cars in a certain year, but sales are better than expected and he sells 100 cars in just eight months, then he will have no cars to sell in the remaining four months. He may have to borrow from another dealer's quota if he can find one friendly enough to offer some unsold cars. But this would mean the two dealers would have to share the profits from the additional sales.

All in all, being a car dealer these days is not a promising business. Once you decide to become a dealer, you will have to invest a lot of money for showroom construction and to buy tools. This will cost at least Bt30 million for a small showroom on a cheap plot of land. Then, when the business gets going, you will earn a profit of no more than 5 per cent for each vehicle you sell - if a car costs Bt1 million, you will get about Bt50,000.

Moreover, many brands no longer sell in big numbers. BMW sells about 1,500 cars a year, while Volvo sells even fewer than that. So if there are about 30 dealers per brand, each will sell only 50 cars a year, generating a profit of about Bt2.5 million.

If you are a new dealer, the income from servicing cars and selling spare parts will not be high enough to make you profitable. The only dealers surviving are the bigger ones with above-average sales (in this example, more than 50 units per year). New dealers with lower-than-average sales face a grim future.

I will continue on this subject of car dealerships next week.

 E-mail your motoring questions to Pattanadesh@nationgroup.com.

By Pattanadesh Asasappakij

The Nation

Ultimate in Luxury

The Luxury LS 460 is a wonderfully comfaortable car fitted with all mod cons, althoough not necessarily the most fun vehicle to drive.