Why Selling Bugattis, Porsches, Bentleys is a Good Business
Image courtesy: Reuters
Four years after Harsh Mariwala founded consumer products marketer Marico in Mumbai in 1987, his cousin Mohan found a totally different calling--automobile dealerships. After completing his electronic engineering from Ohio in the US, Mohan - whose family has been traders in oils for more than half a century - returned to India in 1991. In the year the economy was unshackled, Mohan took up a Tata authorised service centre. He hasn't looked back since. In 1997, he gave up the Tata Motors contract and began servicing Mercedes cars. A year later, he moved on to Honda car dealerships. His latest tryst with automobiles: a dealership for iconic sports car brand Lamborghini.
Unlike Mariwala, the Kachalia family has been in the car dealership business for over 50 years. However, like Mariwala, Sharad Kachalia has also made the shift from mass-market cars to selling a super luxury marquee brand. After selling Maruti Suzuki cars for more than 15 years - his dealer firm Navnit Motors is one of Maruti's largest dealerships in the country -- Kachalia changed gears dramatically four years ago to take up a Rolls Royce dealership. Last year, he sold 50 cars that has the "Flying Lady" ornament on its hood.
The Automobile Deal
Mariwala and Kachalia are among the 15 dealers spread around metros such as Delhi and Mumbai who sell marquees such as Bugattis, Lamborghinis, Porsches, Rolls Royces, Bentleys, Ferraris and Aston Martins to India's rising breed of wealthy consumers through a little under 30 outlets across the country. What's notable about this new tribe of upscale dealers is that they are not appointed by the manufacturers. They've made their own investments and are willing to be more patient than the carmakers themselves who perhaps believe that India is still not ready for their top-of-the-line brands-at least not at the volumes they would need to be viable.
Also, no carmaker worth its cylinders will ever consider selling its super models via its traditional outlets. For instance, a Ferrari will never be found in a Fiat showroom. Neither will a Volkswagen outlet double up as a Bugatti dealership.
As John Chacko, president & managing director of Volkswagen India says: "Our focus currently is on large volume brands. At the moment there is no focus on bringing in our niche products such as the Bentley or the Bugatti but if the scenario changes somewhere down the line, we may consider."
Clearly, the super luxury car segment in the country is driven by these 15 individual dealers. They see an opportunity here, although they realise it is going to be a long haul.
"This is a capital-intensive business with a long gestation period," says Mariwala, who hopes to build scale through multiple locations. "The number of franchisees also creates a rub-off effect on other such brands," he adds.
A typical top-end dealership can suck in an investment of Rs 50 crore, and recovering that capital will take between three and five years.
"Overheads are very high and inventories run into several crores," says Satya Bagla, managing director, Exclusive Motors, which imports Bentleys, Lamborghinis and Bugattis.
The main attraction, though, is the high-margin nature of the business. Average profit margins hover around 14 per cent and can go up to 25 per cent on select models. The margin structure on premium cars, in contrast, is just 5-7 per cent.
The prospect of chunky profits offsets the low-volume nature of this business, in which 3-4 sales a month can be considered good going.
But it is not as if anybody with the money can become a sports car dealer. The entry barriers are many. "Grasping the technical complexity is essential to qualify as a dealer. Investment, market and product knowledge are all essential," says Ashish Chordia, a standalone dealer for Ferrari, Maserati and Porsche. "We will reach three-digit sales figures in three years," he adds.
Dealers of such supercars rely solely on word-of-mouth to sell their cars - which can prove to be a time-consuming exercise. "We have a one-on-one rapport with our customers; it takes 5-6 months before a customer decides to buy such a car," says Mariwala. He adds that this period gives the customer the time he needs to get close to the 'brand's pedigree and heritage."
Dealers go to a fair extent to pamper the well-heeled clients. For instance, once Bugatti buyers have paid a deposit, they are flown to the Gaydon plant in the UK to finalise their seat fittings, pedal positions and for any further tailoring and tinkering, says Adil Jal Darukhanawala, editor, Times Zigwheels.
Buyers of these ultra-luxury wheels depend a lot on owner websites for information. "Our website is the most preferred medium through which customers across India get in touch with us. We also have the online car configurator, where a potential customer can design the car of his dreams sitting in the comfort of his home," says Chordia.
The Flying Doctor Concept
Service works on the 'Flying Doctor' concept - technicians are flown in to any location in the country; and the spares are also delivered by air to that point. Even for regular maintenance the engineer goes to the cars - owners don't have to roll their super set of wheels into the dealership, unlike those who drive common or garden cars. Dealers and the technicians are trained and familiarised overseas on an ongoing basis.
The rush for luxury car brands can be attributed to a new generation of wealthy Indians. According to the 2011 wealth report of Merrill Lynch Global Wealth Management and Capgemini, India's high-net worth population became the world's twelfth largest. "They are well-travelled and exposed to a variety of luxury brands and are comforted with the knowledge that their desired brands are now available in India backed by sales and service," says Lalit Choudary, MD, Performance Cars, a dealer of Aston Martin.
Over 300 super luxury cars of were sold in India in 2010 with the impeccable Rolls Royce leading the pack with highest deliveries of roughly 60 cars. Keep an eye on the road for more Flying Ladys and their flashy peers.
Authors: Lijee Philip and Chanchal Pal Chauhan