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Published on October 31, 2007

Sell 50 cars a year and you can make Bt2.5 million, which does not, of course, include other costs. It will take about 10 years to break even.

If the parent company goes bust, or pulls out of Thailand (some stay for only five years), it will be difficult for dealers to recoup their investment.

Today many automobile companies are being taken over by bigger ones, and when this happens contracts with dealers expire.

Now what will the dealer do?

Contracts state that if dealers fail to hold up their end of the deal they are fined or punished. But no contract ever says that if the parent company pulls out or is taken over by another company, they have to pay dealers compensation.

So, following closely news of parent companies is important, since retailers and customers have a pretty long relationship when the purchase is an automobile.

If the parent company pulls out suddenly, consumers will lose trust and loyalty to that brand - especially when it comes to parts and servicing. This happened with Rover in Thailand a few years ago.

So if investors have no experience in the automobile industry, becoming a dealer could be a risky business.

You must check the status of the parent company and whether it markets its products here. If not, then you must check the duration of the distribution contract and what the company's true investment in Thailand is. Are they investing long term, like building a factory? What is the history of the executives? Do they change companies often?

If executives are always changing, then the marketing plan also changes, so dealers will have to change theirs often, too. This is not good for business.

When there are always changes it is difficult to achieve targets. And if the distributorship is appointed year by year, then it can easily be changed if targets are not achieved. And the dealer's contract with the distributor will be revoked as well.

On the other hand if sales are good, the parent company may decide it will distribute its own cars.

In this case, dealers may not be discharged, but the contract and conditions will be rewritten. This has happened many times with European brands in Thailand.

Also keep an eye on the news.

If the company likes to announce dealership and sales figures, but has no marketing plan, then all it is doing is communicating to investors, not consumers. This is a way of communicating to interested investors, especially those who have never been involved with the auto industry.

Looking at original dealers is important, too. If the business was a dealer for another brand before, and was unsuccessful, don't jump to conclusions. They may have been chosen just because they had a showroom.

And if the first dealer does not build its own showrooms but rents, be careful; it could leave any time. Renting is much cheaper than building and requires little commitment.

But if the first dealer is experienced in the industry and has been successful with other brands, it could be a good sign. It could mean it sees a bright future with a new brand.

Being a car dealer these days is not a promising business and there is risk. There is heavy competition and dealers must put their future in the hands of the marketing executives of the parent company. Dealers do not have much freedom.

It requires a lot of investment and a long time to break even. So think carefully before deciding.

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.