Emerging Challenges for Automotive Dealers in India Ganesh Relekar, Industry Manager, Frost & Sullivan India Automotive industry in India has evolved over the last few decades into a thriving industry with a host of new challenges emerging along. While managing product development and manufacturing is critical in the supply chain, the key to market success lies in the successful customer acquisition and more importantly retention. Automotive dealers are the most significant part of any brand representation in the market place. A company or brand is as good as its representation in the market. Establishing a well-planned dealership network is a bare essential to market products successfully. Importance of sustaining quality of 'customer touch points' was never felt so relevant before. Hence, in the current scenario, performance of dealers is an indication of performance of brand itself and vice versa. A three-wheeled business: How does it balance?   Automotive dealers business can be compared to a three-wheeler. The three wheels of the business are sales, after-sales service and spares. A sale is like front wheel. A dealer principal on the driving seat always likes to steer this wheel to give direction to his/her business. However, many a time, the following two wheels are ignored: the rear two wheels are the ones, which take the maximum load of passengers (customers) who ultimately pay for the ride while sales give direction. These are the changing rules of the automotive dealership business with the change in the distribution channel structure over period of time. Chart 1 below indicates how automotive distribution structure has changed in the past few decades. Chart 1   The distribution has changed from a single channel to multiple channel of contact, for both sales and after-sales services offered to the customer. With the multiplying of channels, the competition has also grown multifold. Multi-brand showrooms are emerging to offer convenience to the customer in comparing and evaluating various brands under single roof and take faster decisions. The earlier competition, only from small time local garages, is evolving into a larger organised independent service provider. In the given situation, the business model of automotive dealers is clearly under tremendous pressure from all the business angles. The forces acting on the dealer business are indicated in the Chart 2. Bargaining power of OEMs is making dealers increasingly invest into the infrastructure to enhance the customer experience. On the other hand, customers are getting savvier and the bar of minimum service expectation is rising day by day. There is increasing threat of new entrants as OEMs are appointing more and more distribution points to enhance reach and penetration. The competition amongst dealers of competing brands as well as within same brand is crossing boundaries. Discounts and freebies are not a seasonal affair anymore. All this has lead to drastic shrinking of margins in the new vehicle sales business. Some progressive dealers confronted these challenges and worked their way to sustain bottom lines through increased focus on after-sales business. However, the sole support of after-sales service business itself is under threat of substitutes in the form of organised (branded) franchised service network. Companies supplying automotive related products in the aftermarket like oil, lubricants, auto components and auto accessories are entering the lucrative automotive service business. This will be the biggest ever challenge faced by the automotive dealers in India. The automotive dealer's business was redefined from selling vehicles to servicing customers in the late nineties with the entry of multinationals in India. However, this new definition of the business itself is under threat with the newly emerging competition. Chart 2   A word of caution Well-known brands in the market like TVS, Cummins, Bosch, Castrol, Gulf Oil, and Reliance have already forayed into the aftersales business in some way and many more are on the verge of entry. With fast pace of new vehicle sales, dealers cannot ignore the sales function (even though it may not add much to bottom line or sometimes negatively impact it). However, if the focus of dealership remains only on sales, the opportunity to earn from growing after-sales service business would be exploited by the independent service providers. Any car owner evaluates a type of service centre on 4 Ps of service channel selection. The 4 Ps are:  ▪  Price of Parts ▪ Price of Labour ▪ Proximity and ▪ Promptness of service   Authorised dealer workshops are always likely to have higher price of parts and labour than the independent after-market, given the higher overhead costs. However, proximity and promptness of service are the two key criteria on which they need to work in order to retain the customer within their fold and earn their lifetime value. There are very few options left with the automotive dealers of this era. They either change themselves and their systems to be more customers focused or concede the business to others.