The Indian unit of Mercedes-Benz will launch a new sales and distribution system sometime in October-December this year that will allow buyers avoid negotiating price with the luxury car’s dealers and directly approach the company for offers.
Under the ‘direct to customer’ model not only will Mercedes-Benz get to design consumer offers but it will also dictate prices to end consumers, which at present was in the hands of its dealers. The brand with the three-pointed star also promises that all Mercedes-Benz models will have a uniform price throughout the country.
What does this mean for dealers?
The company said dealers will face “significantly less financial and operational risks”. Dealers will continue to play a key role in after sales and other allied services, according to Mercedes-Benz India CEO Martin Schwenk.
One of the major promises of the new system is that it relieves the dealers from the hassle of managing inventory. What this means is that dealers won’t have to buy stocks from Mercedes anymore and therefore don’t have to take pay interest on unsold or sold moving models.
Dealers will also continue with marketing activities and run the showrooms in the same way they do. After-sales services too will be their domain. But on the face of it, a company going past dealers directly to customers means loss of business.
With about 28 dealers managing 100 outlets across Tier-I and Tier II cities, Mercedes-Benz has the largest number of dealerships in India run by a luxury car brand.
Were dealers taken into confidence about this move? Will they lose out? Moneycontrol spoke to two large Mercedes-Benz dealers to know what the ‘direct to customer’ model holds for them.
Mohan Mariwala, Founder and Managing Director, Auto Hangar
Operationally nothing changes except that the entire dealer community is completely de-risked from the inventory pressure which comes from margin retention pressure. Customers keep getting bothered with non-transparent pricing. This new system completely eliminates that. We will get a lot of bandwidth to do what we are actually supposed to do which is expanding the market and getting fresh customers. Customer acquisition, marketing drives and test drive experiences remain the core activity of the dealer.
‘Value selling’ is eventually going to sell instead of pricing. The customer today is able to decide and dictate the course of flow once he walks into the showroom. There is very little value addition being done by the sales professional. Within the first half hour the discussion ends on price which should ideally happen at the end. So, we often find that the customer shops for a discount rather than a car.
Over the course of the last one year there was constant engagement between Mercedes-Benz and its dealers on this and everybody is on the same page. This is a new system which will take some time to get absorbed fully.
Sanjay Thakker, Chairman and Founder of Landmark Group
We are the largest partner for Mercedes-Benz in India. The proposed change is the outcome of a long discussion that we have spent as a dealer council as this was being discussed for close to a year now. It is a path breaking thing which is moving with the times.
The dealers were taken into confidence and whatever questions that were there were addressed and changes were made as per terms originally proposed. So, this was a two-way dialogue and it was done with everyone's concurrence.
The margins will be replaced by a commission which will be paid at the end of the month or a period. There will be no loss of income to the dealers.
Discounts given on cars today by us form a part of the margins given by the OEM. The balance is used for paying rental, utilities and salaries and what remains of that is pure profits. In the new model there is no discount element. We will be in fact better off as it will take away all these haggling issues. There was a good amount of pressure on the dealers because when the stock was not getting sold, they had to be discounted.Over a period of time the sale would get simpler because right now there was a huge effort in convincing the customer who checked the prices at more than just one dealer giving rise to confusion. Now this process will become faster and the number of people required for this may become a little less.