Explained: A new auto sales channel by Mercedes-Benz India takes shape

Mercedes-Benz India has started Retail of the Future, under which the company will directly sell cars to end-customers.

Carmakers make cars, and car dealers sell these. This has been the practice for as long as one may remember. It makes sense also; a buyer cannot approach the factory gates of a Maruti Suzuki plant in Manesar to buy a car! Mercedes-Benz India, however, thinks direct selling to end-customers is possible. The German luxury carmaker has started Retail of the Future (ROTF), a new format where Mercedes-Benz India will own the entire stock of cars, sell these via franchise partners (existing dealers), invoice new cars to customers directly, process the order, and even fulfil these. The goal is to offer one transparent price and purchasing experience for customers across India. “It’s a smart move by Mercedes-Benz India, because it knows its customer is digitally-savvy; it’s a great way to engage with customers directly,” said Preetam Mohan Singh, senior vice-president, Automotive, Praxis Global Alliance.

The ROTF will be applicable to new car sales only. Separate business lines including customer service, pre-owned cars and allied businesses remain unchanged. Also, all existing dealer partners (now called franchise partners) have collaborated in implementing ROTF in India, the carmaker said. The ROTF will be implemented in India from Q4-2021 onwards. “There are certain positives to the ROTF,” said another analyst who didn’t want to be quoted. “One, the brand value will not get diluted because of dealer discounts. Two, the carmaker will have larger control over the inventory. Three, it may lead to lower operational costs for dealers in the long run, as they may not really need huge dealerships at prime real estate.”

Martin Schwenk, MD & CEO, Mercedes-Benz India, said that the ROTF will not change the look and feel at a dealership, and yet will give the end-customer better choice in terms of models. “Instead of having to choose from 20-odd cars at one of our bigger dealerships, she can now choose from hundreds of cars from our national inventory,” Schwenk said. The ROTF, Schwenk added, isn’t a reaction to the slowdown following the Covid-19 pandemic. “We thought it about two years ago, and shared with our partners a year ago,” he said.

Tushar Kumar, the MD & CEO of Silver Arrows, a major dealership of Mercedes-Benz India, added that a year ago Schwenk shared this model with him over dinner. “The dealership business is full of risks in terms of forecasting and managing inventory,” Kumar said. “When Schwenk shared this model with me, I looked at the larger picture, and I was excited because I could de-risk my business and free up a lot of mental real estate.” Vinkesh Gulati, the president of the Federation of Automobile Dealers Associations (FADA) said that the ROTF is an out-of-the-box thinking. “This model looks beneficial for the dealer community dealing in premium brands with low volumes, but we will need to see if such a model can work with mass-market brands so that every dealer can benefit out of it,” he said. With the ROTF, dealers won’t have to invest in building up inventory. Rather, they will be utilising their monies into newer ventures for the advancement of the dealership network.

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