After a decade, Tata Motors car dealers turn profitable

Multiple dealers ET spoke with corroborated the fact. “It’s the first time since 2012 that Tata dealers are seeing such a good balance sheet,” said a company dealer referring to FY23.

The profitability for its dealers comes on the back of a consistent yearon-year volume increase; car and SUV volumes at the Mumbai-based firm have seen a more than 2.3x jump in the last decade. Tata Motors passenger vehicles sales soared to 538,640 units in FY23 from 229,325 units in FY13.

Volume increase coupled with the company’s sharp focus on profitability of its retail partners, higher contribution of models – those priced above Rs 10 lakh in the overall sales mix, among other factors, have helped the dealer principles to rake in more, said the dealers.

Enhancement of margins, target driven incentives, a sharp focus on retail, and initiatives undertaken by the company to improve sales manpower productivity also helped, they said. The company’s diversification into multiple electrified models, which on an average command a pricing premium of Rs 300,000-350,000 compared to the traditional internal combustion engine model, has only added to the profit pool of the dealer partners, a Tata Motors dealer said.

Meanwhile, a host of other small initiatives have also helped, said another dealer. For instance, a year back the company stopped giving credit to the dealers. “As a result, there is no unreasonable pushing of stock by them,” he said. Also, typically, dealers are required to partially fund the consumer schemes launched by the company. Tata Motors reduced the share of dealers in such schemes to a minimal—around quarter of a percent. This is helping dealers keep their margins intact, the dealer quoted above stated. To be sure Tata Motors dealers expect profitability to be boosted further in the years ahead as the company’s newly launched models start coming to the service stations after the completion of three years of warranty, adding to income earned from the margin accretive servicing business.With most models in the company’s portfolio being new (within warranty) the share of service in a dealers’ income at Tata dealers is only 25%. This is much higher—over 50% for dealers of Maruti and other manufacturers who have decade old models in their portfolio, explained a dealer partner.

Compared to peers, Tata Motors also has been more generous with the annual bonus payout. On an average, it pays Rs 2,000 to Rs 2,200 per car annually compared to Rs 500-Rs 1000 which is the industry norm. Dealer confidence also stems from the expectation that the car market will continue the momentum of the previous years in the ongoing financial year.

Even as Tata Motors is doing everything to ensure dealer profitability, it’s not losing sight of its own profitability. Bolstered by the consistent sales performance of its and upcoming new launches in the internal combustion engine and battery powered segments, the company is eyeing double digit Ebitda growth in the once loss-making PV business in the near to medium term, it said in the presentation.