Indian Automobile Industry – Changing Dynamics

Edited Text of the Address delivered by Arvind Mathew, President & MD, Ford India Ltd at the Open House Session held on 25th August 2006 at Chennai.

Achieving the Highest levels of Customer Satisfaction

With 70 per cent of the vast population of India being under 40, this young and vibrant India is more focused on consumption than savings - and as the consumer mindset changes, so are their expectations. With the Indian consumer being wooed by glitzy, multi-million dollar marketing campaigns, the range of choices is extensive. This new generation has high levels of international exposure, which has led to a major change in their expectations of the quality of products and services that they receive from people like you and me.

Increasingly, what were considered 'value-added services' a few years ago, are fast becoming hygiene services something that we are expected to provide as routine. Loaner cars and cashless transactions for insurance-based repairs are just some of the demands that today's savvy customers expect as the norm.

Customer handling, throughout the entire ownership experience, from the first test drive, through the regular service check-ups, and finally to the trade-in process on the next vehicle purchase, is extremely critical to upholding our brand image. As we all know, it takes years of continuous and consistent focus on customer satisfaction to build our reputations and one misstep destroys it.

As dealers, all of you have the extremely important responsibility to uphold the brand image of the vehicle manufacturers. As manufacturers, the only touch points we have with our customers are through you - be it on the sales floor or in your service workshops.

And in return, we, as manufacturers, have the responsibility to help you maintain profitable operations - because, at the end of the day, all of you are extremely intelligent business people and you deserve to get the necessary returns on the investments that you have made in your dealerships. Because, if you don't, you'll invest it somewhere else -exactly what customers would do with their money, if they don't value the products and processes that we provide.

We must give you exciting products, built with outstanding quality, and price them competitively to allow you to generate the returns to reinvest in your dealerships. We should develop and maintain cohesive and consistent national and local marketing campaigns to generate the prospects that are so critical to our business. And finally, we must train your sales and service staff to handle our vehicles which are becoming extremely complex with the high levels of technology that are being brought into our industry.

With these shared responsibilities, it is the quality of the relationships that we maintain, between manufacturers and dealers, which decides how we survive in this extremely competitive environment. Here again, it takes honest and open communication to build the mutual trust that is necessary for such a critical association, and it takes only one misplaced action or word to destroy a relationship that may have taken years to establish.

Emerging Trends & Challenges for Auto Retail

We all know that India is booming in more ways than one. The economy has been on the rise. Despite some bumps on the road, there is an overall positive sentiment in the market, and the automobile sector, in particular, has been witnessing healthy growth.

According to industry estimates, in the next four years, automobile companies in India will roll out more than double the number of cars than they make today. We expect domestic demand to grow at double-digit rates for the next three to four years.

Many of you may wonder why I am repeating these statistics to you. With so much good news, what could possibly go wrong?

For starters...we may get complacent. And, with complacency, our businesses become vulnerable to unforeseen competition.

Employee Retention

In today's business environment, there is an outright "War on finding and retaining talent". We are all familiar with the high attrition rates that are sweeping across India today.

Just as developed countries lost jobs to India because of low costs, India is coming under increasing pressure due to our own rising labour costs. Dealerships, such as yours, are no exception and are equally vulnerable to the loss of trained personnel to other industry sectors such as insurance, financial services, healthcare and electronics. We must recognise that our sales personnel are not just selling cars - they are selling financial packages, warranties, insurance, and are in great demand in related sectors.

As I mentioned before, our vehicles are becoming extremely complex pieces of machinery and the days of going to the corner gas station for a quick repair are behind us. Our master technicians are skilled computer, electronics and diagnostics engineers and are open to poaching from the ever growing electronics and IT industries.

I am sure, you will all agree with me when I say that training new apprentices is a time and cost consuming exercise. Dealerships should start focusing on employee retention, by developing clearly laid out career paths, providing specific growth opportunities, perhaps through tie-ups with educational institutions, to make valuable employees move up the value chain within the dealership or even in our other organisations.

Defence against Competitive Service Centres

The potential of the growing car segment is common knowledge and is attracting lots of outside interest. All of you are about to face the toughest competition that you have ever seen. And, this will not come from the local garages, or the road-side mechanics, or even other dealers.

The competition that you are about to face will come from large business houses who have sniffed the huge potential this rapidly expanding segment presents and are willing to pump in enormous amounts of capital to capture a significant pie of the after-sales service market - and they will do this by providing top class services and a positive overall experience to the customer.

Automotive servicing, until recently, a captive revenue stream, is about to be challenged by some of the biggest names in Indian industry. These are big conglomerates with deep pockets and long-term missions to make their ventures a success. Most of these companies reflect some of the most respected names in the Indian industry.

Some of the potential competitors are:

▪	AC Deleo - A General Motors subsidiary
▪	Reliance (RCare)
	-  Fuel Stations - 180 with RCare facility
	-  Hyper Malls - 500+
▪	Bosch India Service - 70 outlets in India
▪	My TVS/TVS Express - a franchisee model (365 outlets in TN & Kerala, 40 in AP, soon to enter Karnataka)
▪	Castrol Car Zone - After success in Castrol Bike Zone
▪	Individual Body shops promoted by insurance companies.

These players have the resources to set up sophisticated, state-of-the-art automobile servicing centres, equipped with latest machines and trained personnel. These companies are in the foray because of their business strategies and have the staying power to drive small time competition out of the game.

One look at the numbers for the automotive servicing segment is enough to indicate why this industry has suddenly become an area of huge interest. Contribution margins in the service business are relatively lucrative, based on our high labour billing rates. To give you a parallel, Ford's service business, including insurance and maintenance, will be upwards of Rs. 500 crore. One can quickly do the math to estimate the size of total retail service business in the country.

Large players enter the industry on a convergence platform to leverage synergies in their businesses. Reliance Petroleum with its proposal of setting up 5000+ fuel stations across the country, plans to upgrade 180+ of these fuel stations with fully equipped service stations under R-Care brand. Asahi India has its retail arm branded as Windshield Experts, promoting quick windshield repairs, with smart cashless transactions set up with Insurance companies.

The next logical question is - how do we ensure customer loyalty in the face of this onslaught of competitive product offerings? While I cannot profess to have all the answers, I do have some suggestions for you to think about.

The first challenge is to ensure that our customers see value in coming back to us for after-sales servicing. There are a number of initiatives that dealers such as yourselves can take to encourage customers to return to you for these services:

Extended Warranties - are a very effective way to get the customer back to the dealership for after-sales repairs and services.

Loyalty Programs - such as the ones introduced by Ford are also important strategies for retaining customers. We offer FordCarGainz and Ford's Total Maintenance Plan (TMP) to our owners.

Our Total Maintenance Plan (TMP) is an innovative programme that offers total maintenance at a price starting as low as Re. 0.39 per km. The plan ensures that the customer gets scheduled maintenance or unplanned repairs completed at any authorised Ford dealership for a fixed price.

FordCarGainz is the first customer loyalty program introduced by an automobile manufacturer, and rewards customers who maintain their routine service schedules at Ford dealerships. FordCarGainz rewards owners with loyalty points, which can be cashed in to purchase accessories and even to pay for service charges. Above all, regular maintenance at authorised service centres generates better vehicle residual values.

Latest Technology - Needless to say, state-of-the-art diagnostic and repair equipment is a must to inspire customer confidence. Besides helping to get the most efficient turnaround on short repairs, they ensure quicker and more accurate diagnosis of complex vehicle problems.

Promoting Use of Genuine Parts & Accessories - One ace in the sleeves that all of you have is the access to Genuine Spare Parts and Accessories. And, that really brings us to the inherent danger of using spurious, unauthorised parts/accessories.

It is absolutely critical to promote the use of genuine spare parts and accessories among all our potential and current customers. This needs to be woven into the sales and after-sales process.

Genuine parts are specifically engineered for our applications and ensure that our vehicles continue to operate at optimum levels of performance and safety. While it may be possible to reverse engineer any part, one cannot replicate it in its entirety, and missing key characteristics are very likely to compromise the integrity of a vehicle system.

For example, Ford offers collapsible steering columns to minimise chest and knee injuries in frontal impacts. These steering columns are specifically designed to collapse based on the deformation of the vehicle's body structure and any effort to replicate this steering system will definitely leave a big gap in the overall crash performance of the car. The industry has already seen numerous failures of after-market electrical accessories, which have led to loss of property and, in some cases, human lives.

Not all customers are technically inclined and may easily get swayed by the cosmetic resemblance of spare parts. It is critical to build on safety as a philosophy and urge car owners to use authorised service stations and genuine spare parts.

A lot of education is needed on this subject and it would serve us well to work collectively on this common cause and combat the rapidly growing unauthorised spare parts industry. By choosing to ignore the threat and by not creating awareness about genuine parts, we undermine the consumer's confidence in us as automobile experts.

Conclusion

To summarise, our industry is growing rapidly and the landscape is changing fast. To ensure ongoing survival, we must strengthen the relationships between vehicle manufacturers and dealers to maintain an unwavering focus on total customer satisfaction and business profitability. We must pay close attention to the fundamentals of our businesses, be it employee training, investments in facilities & technology, or implementing innovative customer retention schemes to ensure that we are providing value to our customers. And finally, all of us have a social and corporate obligation to educate our customers on the benefits of using authorised parts and service centres.

The scenarios outlined are very real and we must work together to develop innovative solutions to continue to provide the best overall value to our customers.