Kang Motors Ltd (KML) is a local business specializing in the trading and servicing of cars. The company’s office is located on the second level of a two-story building along Leng Kee Road. The ground floor of the building is divided into three areas – the showroom for new cars, the used car mart and car parts shop, and the servicing and repairs center.

The company is a family-owned business. The current CEO is Mr Kang Cheong. During a restructuring exercise that started a year ago, Cheong structured KML into 3 divisions. Each division is independently managed by a team. The 3 management teams are compensated solely based on contributions achieved by their respective divisions.

New Cars Division (NCD)

The source of NCD’s revenue is the commission from sales of new car models. KML has been the sole local authorized distributor of new Fonda models for the last 20 years. The dealership terms with Fonda do not allow KML to raise the selling price of any new Fonda cars. For each new car sale, KML is paid a commission equal to a standard percentage of the prescribed selling price of the car. In addition, KML is required to provide servicing and
repairs to Fonda cars that are under warranty (those within 3 years of purchase). Such servicing and repairs are provided free of charge to the Fonda new car owners, but KML is paid by Fonda at labor and imputed fixed costs plus an 80% mark-up. Car parts required for repair of Fonda cars under warranty are supplied, at no cost, by Fonda.

This dealership agreement signed with Fonda almost 5 years ago is expiring in the near future. NCD is in the process of negotiating a new 5-year dealership agreement with Fonda. The two parties are agreeable to maintain most of the terms of the existing agreement. However, Fonda is proposing to increase the new car sales commission dollars paid to NCD by 10% on the condition that KML provides servicing and repairs to new Fonda cars under warranty at
the cost of labor and imputed fixed cost (with no markup). NCD is of the opinion that Fonda, given their long-standing good working relationship with KML, is keen to enter into a new 5-year sole dealership agreement. However, NCD is also aware that a few other car agents have initiated dealership discussions with Fonda.