Despite selling nearly 500 cars, a Mercedes dealer obtains a mere profit of $90,000

In recent years, incomes of Vietnamese people have been increasing, mainly in big cities. The increasing number of rich people is reflected by the increasing demand for purchasing luxury cars such as Mercedes Benz.

According to data from Vietnam Automobile Manufacturers' Association (VAMA), only in 2017, up to 6,000 Mercedes Benz cars were sold in Vietnam- up 1,600 units over the previous year, equivalent to the growth rate of 36 per cent.

Vietnamese people’s increasing need to purchase luxury cars arises in the context that some dealers of such luxury cars are facing difficulties. Last year, a BMW dealer in Vietnam had legal troubles, resulting in the extremely insufficient supply of this car.

Mercedes Benz Vietnam with a large distribution system and competitive prices benefited from the fall of the rivals and gradually became the dominant in the car market in Vietnam.

In the first quarter of this year, Mercedes-Benz Vietnam continued to witness an increase in sales with an estimated 1,403 units sold, far behind rivals such as Lexus (82 units).

The fact that Mercedes becomes a favorite brand which helps dealers increase the sales. Hang Xanh Automobile (Haxaco) has recently reported revenue of VND984 billion ($43.3 million), up 26 per cent year on year. This revenue is equivalent to the sales of about 500 vehicles.

Haxaco together with Vietnam Star and An Du (owned by GAMI Group) are the three officially authorized dealers of the famous Mercedes-Benz company in Vietnam.

However, it is strange that although more cars are sold, Haxaco profits suddenly dropped. The company's after-tax profit was only about the average price of a Mercedes, nearly VND2 billion ($87,970), down 93 per cent over the same period last year.

Profits have fallen sharply, according to Haxaco, which results from a general business model of Mercedes Benz dealers. Generally, the proceeds from the sale of cars will not be enough to offset the large operating costs such as promotions, discounts, car advertising. For the sake of profit, dealers are looking for sales bonus from Mercedes Benz company.

In the financial statement, Haxaco reported a loss of VND17 billion ($747,745) in the first quarter of 2018 and VND11 billion ($483,835) in 2017. The increase in vehicle sales means the increase in losses.

Meanwhile, other incomes – mainly the sales bonus in the first quarter of this year is only VND20 billion ($879,700), down sharply compared with VND46.8 billion ($2.05 million) in 2017.

The unclear disclosure of the conditions for the sales bonus makes the profit of Mercedes Benz dealers such as Haxaco difficult to calculate.

Individual investors cannot measure the effectiveness of Haxaco's business, even when the market is favorable and the company always exceeds the sales plan.

This risk is reflected quite clearly on the stock market. In the last one year, Haxaco stock price has dropped from the peak of VND34,000 ($1.5) per share to around VND17,000 ($0.75) per share.