Best Practices Index (BPI) for OEMS in Managing Automobile Dealerships

Executive Summary of the Study done by Avalon Consulting

Raison d'etre

Over the past few years, the Indian Auto industry has become fiercely competitive. With the entry of global players, consumer choice has increased and they are being wooed aggressively by OEMs and dealers. With intense competition and declining margins on sales, the business has moved from vehicle sales to ownership of the customer through the vehicle life cycle. Hence, the need for the OEM and dealer to work together as a partnership, in today's environment, is imperative.

A well-managed dealer network is now a critical differentiator and extremely important for the OEMs' success. Each OEM is acutely aware of this and several studies have already been done to measure customer and dealer satisfaction. These satisfaction measures reflect the results of underlying systems and processes that are required on the part of OEMs to manage and build a sense of partnership with the channel. For the first time, an attempt has been made to study these systems, processes and practices across OEMs and vehicle categories (cars, two-wheelers and trucks) and develop benchmarks and best practices on this account. Avalon Consulting has evolved a Best Practices Index (BPI) for OEMs in managing automotive dealerships.

Approach and Methodology

The exercise was conceived to be comprehensive in its coverage of systems and processes for managing dealerships. Hence these were classified along four dimensions - sales, service, parts and relationship management. Within each of these dimensions, parameters and sub-parameters were identified for understanding the manner in which OEMs manage dealerships. For example, within sales practices - product development and launch, stocking, sales support, etc. were covered as distinct processes. Specific emphasis was laid on service - especially post warranty - as this is an aspect which is increasingly becoming paramount in the 'ownership of customers'. A total of more than 75 specific issues has been benchmarked across these various processes as part of the exercise.

The exercise was executed through interviews with 320 dealer-owners across 99 locations all across the country representing 20 major OEMs. Representation across small, medium and large towns were ensured for each OEM, depending on the spread of their network.

The responses have been analysed to arrive at Best Practices possible (a score of 100) on each parameter and indices have been developed for each OEM on these parameters vis-a-vis the Best Practices. The indices for each OEM on every parameter have been aggregated to arrive at a score for the OEM for each practice - sales, service, parts and relationship - and at an overall level. These indices have been compared across OEMs within the vehicle category (e.g. Cars) to arrive at the Best Practices Index from among these OEMs at the parameter, practice and overall management level.

Thus, the exercise provides a clear perspective for each OEM on where it stands on every important parameter dealing with managing of dealerships, vis-a-vis its competitors, not just within its vehicle category but across the automobile industry in the country.

Insights are available on important issues like:

▪	Are dealers' views sought by the principal in any new product development?
▪	What kind of support does the principal provide to help finance dealers stocks?
▪	Does the principal help the dealers realise additional revenue streams?
▪	How much of the parts order placed by dealer is generally supplied?
▪	What specific efforts is the principal taking to counter spurious parts?
▪	Does the principal leverage scale benefits to help reduce the cost of showroom fixtures / workshop infrastructure?
▪	Does the principal formally communicate best practices among its dealers?

 
Results

Cars and UVs

Honda and Toyota have the highest BPI followed closely by Hyundai and Maruti. The scores of most of the players lie in a narrow band. However, the absolute scores are far lower than those encountered in satisfaction studies.


Tata Motors is the leader in Sales BPI, followed by M&M making it an Indian OEMs club at the top. Leaders in overall BPI like Toyota, Honda, Hyundai and Maruti have to catch up in terms of their sales BPI.


Within the sales processes, most OEMs have low indices in areas like ensuring price uniformity and combating discounting pressures, financing support to dealers and assisting them in generating additional revenue streams.

Maruti is the leader in Service BPI followed by Honda. The industry average is lowest in Service BPI due to the poor performance of most OEMs on Post Warranty parameters poor focus on this aspect of the business, no marketing support, no or inadequately designed service products, poor customer handling, etc. Besides, even on the warranty side, there is an urgent need to focus on processes to empower dealers to take faster decisions on warranty claims settlement.


Hyundai and Toyota are the leaders in Parts BPI. However, there is a wide variation between the lowest and the highest scorer with Maruti being a significant under-performer.


None of the OEMs have a formal parts return policy - a phenomenon common in other parts of the world. Processes to control stock levels and not forcing supplies on dealers is an issue with most OEMs,

Two Wheelers

Hero Honda has the highest BPI, followed closely by Honda, and TVS. The top 4 players - Hero Honda, Honda, TVS and Kinetic, have nearly similar scores while the rest are lagging.


Kinetic is the leader in Sales BPI followed closely by TVS. Hero Honda and Honda have some catching up to do in this area.


Hero Honda is the leader in Service BPI (with a score of 59) but the absolute scores of most OEMs is low, driven by their poor practices on Post-Warranty Service. The areas of improvement are similar as in the case of cars - warranty rate and empowerment and post warranty.

Honda Scooters is the leader in Parts practices, followed closely by Bajaj Auto. There is a significant difference in scores of the top performers and the rest of the industry with even leaders in other areas like TVS and Kinetic needing to improve significantly.


Even in the case of two-wheelers, none of the OEMs have a parts return policy and stocks are thrust down the channel.

Honda Scooters is the clear leader in relationship management processes, followed by Hero Honda. All others score less than 60 on this account.

Commercial Vehicles

Ashok Leyland has emerged with the highest BPI, but the difference in scores across players is low.


Ashok Leyland also has the best sales practices, but lags behind Eicher in Service BPI. Absolute scores across all the BPI for commercial vehicles is lower than the other two product categories. Issues impacting the score, apart from the parameters in cars and two-wheelers, also encompass reimbursing warranty payments on time, no parts return policy, combating spurious parts, etc.

Conclusions and Learnings

It is interesting to note that the highest overall BPI achieved by any OEM is only 63%, a low absolute score, especially in comparison to customer and dealer satisfaction scores, which are usually upwards of 80%.

Traditional weaknesses like processes related to Product Development & Launch, Warranty & Training and Order Fulfillment of Parts have been overcome by most OEMs. Stock management related practices vary across OEMs with some of them consciously managing the pipeline.

However, a lack of service focus is the common weakness of OEMs across categories - especially Post-Warranty management of customers. Clearly, the mantra "Customer Ownership" has to move beyond lip service to actual systems and processes on the ground to work with the channel.

Note: The detailed report (along with a presentation and interaction with the team that has worked on the study) is available for sale from Avalon Consulting, W-16, Greater Kailash Part II, New Delhi 110 048 (Phone: 011 - 5163 8670).