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Vision
2015: The Future of Auto Retail Edited Text of the Presentation made by Venu Srinivasan, CMD, TVS Motor Company at Valedictory Session: Vision 2015 of 4th Auto Summit on 14th January 2006 We have seen some good times In the last few years, we have seen good times marked by growth explosion, growing consumerism and consumer expectations. While finance has been a major factor driving the sale of vehicles in the last five years, today, it is more of desire and emotion that rules in the purchase of new cars and motorcycles. But one thing's is for sure The one thing that we know as we go forward is that change is the constant and that the rate of change is accelerating. Competition is intense and is going to be more intense not only for manufacturers but also for dealers with shrinking margins & territories and addition of more dealers in the same territory. Customers today are savvier and becoming more demanding. Manufacturers, dealers and, for that matter, other players in the automotive business, most importantly finance companies, are becoming even more aggressive. Similarly, new technologies are creating new challenges. However, there are many more exciting opportunities that are opening up at the same time.
The 'third wave' is upon us bringing along new challenges & opportunities There have been three waves since India became independent and started its industrial progress. The first wave was the closed markets of the fifties, sixties and seventies, when we had three cars, namely, Ambassador, Premier and Standard Motors. And, if you wanted a scooter, it was mostly the Bajaj for which one had to wait for at least seven years. There was always a premium; supply decided the size of industry and the pace of growth, and the choice was very limited. From there, we went to the second phase that saw the advent of Maruti, Hero Honda, TVS, Yamaha, bringing in new technologies, greater choice and finance availability. But, we still had a fairly limited market range till about five years ago. The 2000 dawned not only a new millennium but a new world of consumerism in India. We are really seeing today young people with money in their pockets to spend, driving new products, new styles and new fashions. The best international brands are present in India today.
Learn, unlearn and relearn It is really a very different world that we would not have even visualised ten years ago. Telecommunication has radically changed the landscape, broadband has arrived and the internet is quite commonly used. To cap it all, India and China have emerged as great manufacturing powers in the world. There is a small quotation by Alvin Toffler that the future belongs to those who are willing to learn, and also willing to unlearn and relearn. It is not for those who want to be fixed in their ways and thoughts.
The leap of scale We have seen a huge boom in automotive business; sustained 7-8% growth of GDP has made India one of the most vibrant economies of the world, which is not much dependent on the monsoon. At the same time, India is one of the least penetrated markets in the world and therefore, a big leap in scales of production & sales is imminent. There are many new players, the market is becoming finer and finer in its segmentation, and opportunities are for those who can read and understand the minds of the young and more enlightened consumers. This is the new challenge for all of us as manufacturers, and for all of you dealers as the people who are the front line and the last mile connectivity with those consumers. We are going to see a phenomenal expansion of dealership network covering even small towns, villages and rural areas. Rural financing is going to be a great tool to open up and tap the rural markets that are underserved today. And, most importantly, no longer can we wait for the customer to come; we need to go where the customer lives and where he/she works.
The leap to address new segments There is a need to address new segments; India has got one of the lowest usages of two-wheelers by women, whereas in Indonesia, you will find that outside Jakarta, forty per cent of two-wheelers are used by women. Indian women's lifestyle and needs are not very different. So, why is it that we have such a low usage of motorcycles or two-wheelers by women? Are dealers equipped to deal with the requirements and demands that women will make, the sensitivity that is required to deal with them, and the environment in which they shop? Automobiles are no longer commuting products or transportation products, but fashion statements. Indian consumer is very rapidly changing to demand contemporary products. Today, Indian consumer demands that he pays the price of a Maruti and gets the excellence of a Mercedes Benz or a Rolls Royce. That is the real world of India where we want extraordinary value by paying very ordinary prices, which is a very great challenge for all of us.
Other finer segments that are emerging are the youth, the rich 'hobby riders' and the senior citizens. The youth today believes in individualism and individuality and, therefore, demands customisation at levels that we have not seen till now. We have not yet seen the real burst of individual expression in terms of cruiser biking or SUV clubs. In the next five to ten years, these would be the kind of things that would happen in this country just as it has happened everywhere in the world. It will come about much quicker and faster than we can ever believe. The leap to meet new expectations In this era of service economy, people are demanding service at exceptional levels. It is not far away when automobile dealers will have to serve people at their doorstep. Late night service stations or after-office-hours service offered by dealerships is still a rarity. With their exposure to international levels of excellence, customers in future are going to be unforgiving and no longer tolerant of shoddy service, or poor manufacture, or any kind of delay that they have been used to in the past.
The leap in IT We are going to witness a big leap in the use of IT in dealership operations and customer service relations. We still haven't seen IT and Internet usage in purchase of vehicles and dealership management in the same degrees that we see in other countries. We have not yet seen completely automated dealerships, the dealer management systems and customer relation management programmes. These things are going to change the way we do business. It is going to change our response and improve our costs. When these linkages come and connectivity between dealers and the production planning takes place at the levels seen in other countries, it is going to lower dealers' inventory and inventory costs, improve logistics costs and cash flows. Companies also stand to benefit from the reduction in cost of capital and work in progress. The real time information flow from dealers to the manufacturers will certainly improve the way we design products, the way we respond to changes in the market and the speed at which variants are launched as the customers' demand and expectation change. It will also change the way our dealerships look. I think dealerships are going to look like NASA outpost and less like ordinary dealerships today. Dealerships are going to have Internet booths in their premises or at other places, where customers can surf and see what the company has to offer. Customers don't even have to talk to salesman, who will be simply there to assist the customer in making up his/her mind.
The leap in retail experience The face of retail will change radically in future as products & features will increasingly converge. Retail experience will become a crucial differentiator and an important part of the overall brand package & experience, not just the vehicle and not just the services alone. Customers today surf the Internet and then decide where to go and finally make their purchases. So, there is a lot of pre-determination that is taking place from the home, and we have not yet seen the dealers having websites and competing on the Internet. The leap in technology There is going to be a big leap in vehicle technology. For example, it is not far away when you will have engines with electro magnetic valves, where a chip can change significantly your fuel injection system and your engine timing and give you a completely different performance just at the click of a switch or change of the chip. With the kind of connectivity that is going to take place in not too distant future, simply by punching the chassis number, an engineer in any part of the country will be able to know the history of a vehicle. Similarly, 24x7 service stations, online reservations of service time or appointments will become the order of the day.
The leap in manufacturing We are already witnessing a slew of new models being launched at greater frequency. 2015 will see a significantly wider product range and variety including hybrids, alternate fuel operated and fuel cell driven vehicles, which will increase complexities of dealership operations because the technical capacity and the knowledge capacity at dealerships will also have to improve to cope with this challenge.
The leap in after sales service Dealerships are going to assume the role of last mile manufacturing in view of the increasing level of customisation demanded by the customers. It is a likely scenario that the dealers will be receiving unpainted panels and will deliver to the customer a scooter or a motorcycle painted at the dealership in the colour that the customer wants, with the graphics that he/she demands and with a lot of customisation of horns, handgrips, side panels and host of other fixtures.
The leap in financing There is no gainsaying that auto finance has played a major role in not only driving the growth in vehicle sales in the last 6-7 years but also increasing the revenues of automobile dealerships. However, when we envision 2015, there is a tantalising possibility that finance companies, which are paying to sell vehicles; may open one stop durable shops with different brands and models of two-wheelers, cars, TVs and other white goods under one roof. Such a scenario can create a completely new paradigm, although it looks like a remote possibility. It may not happen to high-end brands but the possibility of it happening in the case of lower end products that are more or less generic or mass products, cannot be ruled out.
The leap to Organised Seconds Indian market is poised for a big leap in used vehicle business with ownership/ replacement cycle getting shortened and a vast population of 2-wheeler owners waiting in the wings to graduate to owning cars. All of us are missing a huge opportunity on used vehicles. Used vehicles provide with two opportunities: (a) It helps dealerships make extra money; and (b) it obviates the cash flow problem even when new car sales are not doing well. Automobile dealers must grab this opportunity and should not treat it as a hassle. By not getting into this activity, automobile dealers are giving away a value addition stream to the brokers in unorganised sector and doing a disservice to the nation and the customers. This business activity offers a great opportunity and, at times, brings in more money given the low margins on new cars, new trucks, and new two wheelers; value may be smaller but the gross margins are much higher.
The leap in retail formats Finally, we are going to witness a revolution and big leap in retail formats. We can very well imagine Auto Malls and Auto Zones coming up. These exclusive Malls/Zones will be equipped with facilities of test track, dirt track, go-cart for small children, entertainment, etc. It could be a single brand or a multi-brand mall, having, say, a Bajaj outlet, a TVS outlet, a Hero Honda outlet, a Yamaha outlet, or a Suzuki outlet. These things will make it easier for customers to come to one place, compare various vehicles and models and also have a great family experience in buying vehicles. We would, as well see specialised retail outlets, such as sports bike showroom, SUV outlet and the like. So, there are many ways things can change. Just like the banks went the ATMs way, automobile dealerships of the future will be hub and spokes model in view of the expanding urbanisation and city limits.
New Challenges, New Threats & New Great Opportunities All I would like to say is that there are new challenges and new threats, but there are new great opportunities. And, those opportunities are going to remain opportunities only for those who can see the change happening and those who are going to unlearn and learn and reinvent themselves. It is going to be a costly threat to the rest of us who are not willing to change. These are some of the scenarios that could take place in our retailing environment in the future.
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