Home A Paradigm Shift in Automobile Business and the Role of Dealerships   Aditya Vij, President & Managing Director, General Motors India. Aditya Vij took over as President & Managing Director of General Motors India in August 2000. Aditya Vij is the first Indian to head the operations of GM India. He is based at GM India's headquarters in Gurgaon and also oversees GM's operations in India including the manufacturing facility at Halol. He is spearheading GM's expansion in this region. Aditya Vij, who brings with him wide and varied experience having held senior positions in various GM overseas operations, began his career in GM as a Senior Executive of new products at Adam Opel in Germany in 1991. Having worked in Germany and GM's European headquarters in Zurich, Switzerland, he was appointed as Director (Sales & Marketing) at GM India in 1995. He remained in this position till his elevation as General Director, Opel Southeast Europe based at Budapest, Hungary. During his tenure in Hungary, he was responsible for Opel's presence in' nine Central European countries. His interests include playing tennis and reading management books. Aditya Vij holds a bachelor's degree in Commerce from Shri Ram College of Commerce in Delhi and is a Chartered Accountant from "The Institute of Chartered Accountants of India". In addition, he did his MBA from IMD, Switzerland. The Indian automobile industry has come a long way since the first car ran on the streets of Bombay (now Mumbai) in 1898. The initial years of the industry were characterised by unfavourable government policies. The real big change as we see in the industry today, started to take place with the liberalisation policies that the Government initiated in 1991. The early 1990s - Earlier due to a huge gap in supply and demand, customers had to wait for months to get the delivery of their cars. Dealers were complacent and did not have sustained focus on customer service and sales satisfaction. They functioned as retail windows for the manufacturer and, with high margins on every car sold, they hardly focused on service and maintenance. Retail sales were the revenue earner and After-sales was considered more of a liability. Numbers of car dealerships were few and far between. Customers quite often had to travel long distances to purchase a car. Service centres were few and inadequately equipped. Service levels were given low priority and most customers preferred to get their car serviced by their local mechanics. Customers bought a car and did not consider a replacement for years. The same car was repaired and used over the years. Dual car households were a rarity. Car usage and ownership was itself more of an urban phenomenon. Product offerings itself were few and option was only in the economy sedan and hatchback segment. Petrol was the only fuel option in the car segment and it was common for customers to fit in their own diesel engines. Finance companies played a marginal role in the car industry and interest rates were high. Mid 1990s onwards - The past few years have witnessed a rapid change in all facets of the Indian Automotive Industry. The scenario has changed from 'Duopoly' to 'Oligopoly'. With more and more international as well as domestic car manufacturers entering into the fray, the choices for customers have multiplied substantially across each segment - economy, premium, luxury as well as MUV/SUV. There is a proliferation of brands in the market place. The number of car dealerships across the country has increased. Customers now have easy access to car showrooms as well as service centres. Dual car household have increased on account of nuclear families with dual incomes. Car ownership cycle has itself shrunk with most owners looking for a change or an upgrade every 4 to 5 years. There is a trend towards SUV/MPV type of vehicles on account of increasingly mobile lifestyles. There is also a range of high technology diesel engine options across all segments and we are witnessing rapid penetration of diesel-powered cars across economy segment to luxury segment. International competition, increase in the number of participants, and the need for increased market share have made it a buyer's rather than a seller's market. Customers have wide model choices. Rising income levels - especially among young adults - coupled with the low Equated Monthly Installments (EMIs) have made vehicle purchase affordable. In the last couple of years, we have also witnessed a change in buying preferences; share of the Maruti 800 in the total passenger car industry has been going down steadily. Consumers have started moving up to bigger cars. With increasing disposable income and decrease in interest rates, customers prefer bigger and safer cars in each segment. The growth of the 3-4 lakh segment cars corroborates this trend. Entry-level sedans which are perceived to have a premium image as compared to hatchbacks (because of 3 box styling) have been steadily realigning prices to attract the upper segment of the hatchback buyers. This increased value propositions has fuelled growth of the auto industry in the last 2 years. The Indian customer has seen influx of latest generation of vehicles and the best technologies. This development is partly driven by the improved road infrastructure in the country. With the completion of the Golden Quadrilateral, there will be a further shift in usage pattern and car purchase reference. Safety and vehicle sturdiness, car attributes that were never considered earlier, will be given greater consideration in the car selection process. Buyers will opt for road travel over railway travel. On account of its fuel efficiency advantage, diesel engine powered cars will continue to be popular despite the reduction in price gap between petrol and diesel fuel prices. Gone are the days when buyers queued up to buy a car and both manufacturers and their dealerships operated on healthy margins. The challenge to achieve volumes and market share has pushed manufacturers to operate on wafer thin margins. This pressure on the bottom line is further compounded by increase in input costs on account of increase in price of key elements such as steel as well as tighter emission and safety norms. Manufacturers today are not in a position to pass on increasing costs to the customer and are being forced to offset the same through greater efficiencies in operation. Focus is on Top Line growth rather than on Bottom Line growth. Heavy discounting by almost all car manufacturers is likely to continue and will erode margins for both the manufacturer and the retailer. In time to come, product differentiation is bound to reduce and cars from different manufacturers are going to be increasingly comparable on quality and performance parameters. The key differentiator will be Customer Service. Car dealerships will need to shift focus from "Selling Products" to "Selling Services". Product ownership experience will not be restricted to purchase experience alone but will span the entire ownership period of the car. It will commence from vehicle selection and enquiry management. Activities like vehicle documentation and delivery, processing of loan documents, insurance and registration formalities will be critical to customer satisfaction. The ownership experience will extend to the after sales service and parts support experience which will continue to be critical parameters on which buying decision will be based. The ownership experience will culminate with resale experience. Residual value of cars will remain a key consideration during the buying process. Residual values will be dependent on exchange schemes offered by dealers. Used car business will become essential and will provide a high margin business opportunity for the dealer besides generating higher workshop revenue on account of used car refurbishment. Margins on vehicle sales will erode and dealerships will rely on revenue from sale of accessories, insurance, extended warranties, service contracts and used car business. Opportunities for dealership revenue will exist at each level of the value chain. Dealerships that are able to best manage these opportunities will be the most profitable. The liabilities of yesterday are emerging as the revenue earners for the future.     The graph shown above highlights the expected revenue sources for the dealership in the years to come. With associated services becoming high revenue earners, it becomes extremely important for car manufacturers to closely monitor the dealerships and ensure that customers are completely satisfied throughout the ownership of their product. The dealer would have to focus on developing a life-long relationship with his customer, this focus would help him move the customers up to the next higher segment car by the same manufacturer. Car dealership will need to operate on a larger scale with greater horizons in mind. As with large retail chains, they will need to expand with multiplicity of outlets and grow into respectable brands in themselves. Brands in which consumers will have trust. Dealerships with such Brand value will become preferred choice of employment for sales consultants. These retailer chains will be differentiated on the levels of service provided by them and in the transparency of operations. Auto Dealerships thus have to ensure their viability in the long run by focusing on processes, service/maintenance and customer satisfaction during the complete ownership period. With word of mouth/referrals having a strong influence on vehicle purchase, it is imperative for the manufacturer as well as the dealer to be customer focused at all times. Customer loyalty programs will playa big role since every manufacturer will have a product at different price points and everyone will want a customer for lifetime. As the Indian car market matures, customers will expect the latest products and technology from manufacturers. High levels of reliability and quality will become "hygiene" factors in the years to come. High technology of products and extended warranty packages will ensure that dealership workshop business is assured. However, body shop repairs will continue to be the big revenue earners for workshops. Regular revenue on account of scheduled services will be under pressure on account of longer service intervals and higher quality of vehicles, which need reduced maintenance and repair. This will be further compounded by improved road conditions leading to longer life of vehicle aggregates. The opportunity for workshop revenue will lie in annual service contracts and bundling of offers such as vehicle repainting and refurbishment. Syndicated studies conducted by global research agencies in India, give each manufacturer as well as consumers a good idea of how dealerships and processes are performing vis-a-vis competition. These results are widely published and widely, read. For example, the SSI (Sales Satisfaction Index) study conducted by JD Power rates each manufacturer on satisfaction of the buyer during his buying process - How was the dealership experience, delivery experience, sales consultants attitude and performance, etc. Car dealers are now partners in business for car manufacturers. Their feedback on the product is used in strategic decision-making and also has a bearing on future product plans. Dealers are being groomed for the times to come where they would have to sell multiple products in different segments to a different set of customers and still ensure that they satisfy all their customers who would reflect in increased sales for the dealership and the manufacturer.