Future Holds Out Promise for Indian Automotive Market

Skilled manpower shortage, infrastructure, credit availability crunch & rising interest rates and volatile oil prices are the major challenges

The medium and long-term outlook for the Indian automotive market is promising.  This was the general view emerging at the 44th Annual Session of Federation of Automobile Dealers Associations held on 27th September 2008 at New Delhi.

M Takedagawa, President & CEO, Honda Siel Cars India and the Chief Guest, speaking on the occasion sounded bullish, saying that the auto industry would bounce back and regain its buoyancy sooner than later.  He said that Honda was quite upbeat on the Indian auto market in the medium and long runs and had ambitious plans.  Low passenger car penetration level and continuing healthy performance of Indian economy, resulting in the increasing number of middle income households and their rising aspirations & changing lifestyles would fuel the growth, he added. Takedagawa pointed out that while the primary role of the manufacturers is to provide high quality products, the dealers have the onerous responsibility of providing matching customer services and timely feedback to the manufacturers. Stressing on the importance of automobile dealers in the value chain, he expressed the view that the standard of after-sales service can make or break a brand. Workshop and used car business should be the focus of future investment for the automobile dealers in order to stay viable, he said.

Nalin Mehta, CEO, Mahindra Renault in his presentation suggested that identifying and understanding the individual needs of customers would be a major differentiating factor in view of the fact that the distinction in technology was getting blurred by the day. Emphasising that the value for a customer is a sensory experience, he pointed out “The size of the purchase does not matter; the size of experience does.”

Painting a bright picture of Indian automotive market, Ankush Arora, Vice President, General Motors India, said that Asia Pacific region was expected to account for 66% of the growth of auto industry in the next 10 years, with the Indian four-wheeler market including passenger cars and commercial vehicles expanding to over 5.3 million units by the year 2017. He said that the automobile dealers would have to gear to stand up to the fast changing automotive scenario, lest they were overtaken by the events. He spelt out 3 mantras for survival in this fast changing scenario: (i) Health of dealerships will reflect the success of manufacturer; (ii) Employee satisfaction is a prerequisite for the customer satisfaction; and (iii) Lifetime retention and value of customer is the key to profitability. For automobile dealerships to stay healthy, it would be essential for them to optimise their facilities and to adopt non-traditional marketing i.e. Digital & CRM.

Commenting on the level of margins of automobile dealerships, Ankush Arora opined that it would be advisable not to stick to any standard formula.  Solution lay in layering of margins depending upon the product sophistication and its holding & marketing costs. Underlining the importance of service in the business model of dealerships in the current & emerging scenario and visualising the scenario ten years down the line, he said that automobile dealerships of the 2016 would have to be combination of virtual & brick dealerships that would ensure employee pride, take to new-age marketing techniques to tap lifetime opportunity & value offered by their customers, and profit from comprehensive range of services. The real difference in this fierce competitive market would be the “Automobile Dealers”, he felt.

Earlier in his welcome address, Pradip R Kamdar, President, Federation of Automobile Dealers (FADA) said, “The dynamics of retail automobile trade are changing at alarmingly fast pace in the intense competitive scenario. The new paradigm of automotive business, where competition and survival is the buzzword, has brought forth a host of challenges for automobile dealers. 

The very viability of automobile dealerships is under severe stress. Customer expectations are getting sky-high on one hand, the manufacturers insist on world-class ambience and facilities at the showrooms and workshops, on the other.  Compounding the problem is the shortage of trained manpower, with automobile dealerships, finance & insurance companies and retail sector vying to attract manpower with hefty compensation packages.  While the costs of dealership operations are rising to alarming proportion, the sale margins are shrinking, as the competition intensifies with each passing day and the manufacturers come up with the promotional offers to retain and increase their market share.

There are a number of other challenges that have become a bugbear for automobile retail trade and service industry.  As the land use laws stand today, the automobile dealerships with 3-S facility under one roof can operate neither from commercial areas nor from industrial areas. Similarly, incidence and cascading effect of various taxes account for over 50% of the price of vehicles in India. Multiplicity of taxes apart, these taxes on motor vehicles vary from State to State, adding to confusion and complexities in compliance and running counter to fair play and equity.”

Non-Uniformity in and complexity of procedures for registration of vehicles is another area of concern, he said adding, “While Automotive Mission Plan 2006-2016 is buoyant about the Indian automotive industry and so are the industry leaders, experts & analysts, auto retail finds itself in an unenviable position. 

The problem for automobile dealerships is that they cannot play around much with their cost structure, for, most of the expenditure under various heads of dealership operation is inelastic and cannot be reduced. As the market matures and grows, the number of models and their variants also increase. Dealerships have to have in their inventory all such models and variants, as also their spare parts. Similarly, in an intense competitive environment, marketing effort has to be sustained to keep the sales kicking. With increasing tempo of economic activity leading to growing urbanisation and tightening of environment & safety laws, the real estate and compliance costs continue to rise unabated.”

He called for industry, trade and other players in value chain to join hands in addressing and tackling these challenges in the interest of sustained growth of automotive business as a whole