Expanding Horizon for Auto Dealerships

Looking Beyond Country's Frontiers

Text of the Address by Mr R Seshasayee, Managing Director, Ashok Leyland at Business Session I - "Winning Through Changed Strategies" of 3rd Auto Summit - 17 January 2004, New Delhi

Distinguished colleagues on the dais and members of FADA, it is always a great pleasure to meet with the dealers and it certainly sounds very good to hear my colleagues say that in all the ups and downs of this industry the dealerships never make loss with Leyland. But, we certainly make losses and it is good therefore, to hear that despite that the dealerships are happy.

I must also apologise to you for turning up late. I must say, the only reason for that was the heavy traffic, which in perverse way is good news for all of us with so many vehicles on the road.

We must appreciate the fact that it is not a linear path of growth that we are on to. We all, by now, are very familiar with the pattern. Apart from the spiralling way by which nature behaves, I think that Indians are very harmonious with nature, for, we don't need any more evidence than the fact that we go round in circles on many things including, political decisions. Therefore we must be very spiral in our own nature of thinking. Another fact that is very well accepted is that we go through a boom-bust cycle in auto industry. One is therefore, tempted to wonder, is there a need for a change in strategy now, considering that the auto industry is on a roll? We should accept the fact that we will move on a boom-bust cycle. As such, there will be changes, disruptive changes and we have to be, therefore, prepared to cope with these changes.

I was trying to figure out as to what precisely is this major change that we are now faced with. The only thing that I can think of as a major change is the talk about globalisation. I say 'talk', because I can't pretend that the Indian auto industry has suddenly become global. We haven't really conquered the world, Indian automobiles are not seen on the streets of all the western nations, but globalisation is certainly the buzzword now.

The Asia Auto Monitor talks about how global we have become. Certainly, there is a mute change in the mindset. We are beginning to think of globalisation. We may not yet be global in physical terms, but we are not afraid to talk of being global. This makes a big difference, to be able to say with confidence that we are going to be global. This is a very important step forward. Clearly, a lot is done in the mind and physical actions follow. Once you have changed your mind and start thinking that yes, you can scale heights and can conquer the world, physical actions are much easier to follow. A lot of restrictions are there in the mind.

I am very fond of a story that brings out this particular fact very clearly. It is about a frog that was living in a well for a long time, was very content because of the environment that it had. But, it also had a chance to look at the blue sky and wondered as to what the world outside would look like with its blue sky and birds singing occasionally. The world outside the well appeared very interesting. So, the frog thought that it must have an opportunity to jump out of the well and see the world for itself. However, the frog was small and the well was deep, and therefore it said to itself that it couldn't come out of the well by itself. It needed help and, as such, started summoning every passer by, to help it out of the well. Everyone would ignore the frog and walk away. It was getting despondent until a good Samaritan walked by. As usual, it called the good Samaritan and being a good person that he was, he said "Frog, I have got a very urgent errand, let me complete the job. When I come back, I will help you out of the well." The good Samaritan finished his job and came back to help the frog out of the well, but saw that the frog was out of the well. He said, "Frog, you said that you can't come out of the well and you needed help, but how did you come out of the well all by yourself?" The frog said, "Wouldn't you know that a big black serpent is in the well?" So, it was all in the mind. The big black serpent made sure that the frog had the courage and it could muster enough strength to jump out of the well.

I think it is the changed mindset, which has happened today. We have all been frogs in the well for good reasons or bad, and now we suddenly find that this big black serpent in the form of global competition coming in here making us suddenly feel very courageous, and very bold to think that we can jump out of the well and scale the world. That is a big change that has happened.

▪	It is not a linear path of growth that we are on to. We have been going through the boom-bust cycle.
▪	We may not yet be global in physical terms, but we are not afraid to talk of being global - this wakes a big difference.

 
How do we cope with this change? What is the kind of strategic change that is required, amongst the dealership community to cope with the change that the automobile industry is now talking about? You have got the four wheels in the automobile, as we always say. You have got the vehicle manufacturer, the dealer, the supplier and the customer. All the four wheels have to go in tandem. You can, of course, allow for some manoeuvrability for each wheel, but they must all stay together in order that the vehicle moves forward. Are we in a situation where the aspirations of the industry to be global are fully shared by all the four wheels? Is there something that motivates all the four wheels to go at the same speed and in the same direction? Is there a lag in any one particular part?

That is the question that might well worth be contemplated. The auto ancillary industry certainly seems to be talking the same language. In fact, in a way, the auto ancillaries are talking about global opportunities even more loudly than the vehicle manufacturers. This is because of the fact that today global competition has come into the country enabling local industries to feel that they are in a position to match up both in terms of quality and productivity. Something is visible for them to match up and therefore the aspiration levels of the auto ancillary industry have clearly gone up.

However, it has not been a very smooth sail either for the auto industry or the OEMs of ancillaries. We had, to go through a great deal of pain. We had to go through a very rapid process of change in emission and safety standards. We have brought upon ourselves a very tight schedule to adopt stringent emission standards and to develop new technologies to be able to stand up to the Ghallenges of globalisation. Additional cost of this is certainly a burden. Yet, this bumpy and difficult journey has made sure that we have the confidence now to be able to face competition from rest of the world and be competitive in other markets of the world.

While we are thinking about globalisation in the auto and the ancillary industries, the question that is worth reflecting on is whether the dealership is looking at globalisation. That might sound a bit odd, because we haven't talked about globalisation in the context of dealerships. When an OEM goes into a new market, it takes along with it the tier one suppliers. It doesn't take along with it the tier one dealers. We do not always hear the dealership looking at exploring their business globally. I wonder why there is this kind of a hiatus between the thinking, at the OEM level, the ancillary supplier level, and at the dealer level. Is it because, while the suppliers or the OEMs have a product technology, something that differentiates their products from others, such a thing is not available in dealership?

I am not sure that just because it is a service industry, an auto dealership can come to the conclusion that it cannot be differentiated. There must be something differentiable in their service or product offerings. It cannot be accepted that the auto dealership does not have a differentiating kind of a service or a service product definition. Is it because the customers in different markets are so different that it is not possible for a dealer in India to be able to understand and deliver the right kind of products and services to a customer in a different market? I am also not able to accept this argument, because, if you look at some of the more difficult situations where a local customer tastes and beliefs are far more crucial, for example, in food industry. Why would the McDonalds, Pepsi and Coke venture into different markets with very different food habits where local habits in fact, are paramount? Why would they venture into these markets and try and work out a product offering, which suits the local tastes and appeals the local palette. We still have the Pizzas here, which are sufficiently Indianised to attract a very core Indian customer.

Why would it be such a difficult proposition for an auto dealership to be able to go into a different market and offer the right kind of services to a customer in that market? If you reflect on that I think two issues come up. One, the fact that auto dealerships are by and large dictated by OEMs in terms of the type of service offerings that they make; the template, the technology links etc are provided and the OEMs therefore want the dealership to perform in a particular fashion. In a very rough kind of way, this is the kind of a format that an OEM operates with a tier two supplier, a non-proprietary supplier, like a casting and a forging, where the job of a supplier is to deliver supplies based simply on the drawings and the specifications given by the OEMs. That is not a partnership, which is an all-time, all-weather durable partnership. We are talking about consolidating partnerships and this is why I was tempted to talk about this particular issue.

▪	The four wheels of the automobile - the vehicle manufacturer, the dealer, the supplier and the customer must move in tandem.
▪	Bumpy and difficult journey has made sure that we have the confidence now to be able to face competition from rest of the world and be competitive in other markets of the world.
▪	The question worth reflecting on is whether the dealership is looking at globalisation.
▪	It cannot be accepted that the auto dealership does not have a differentiating kind of a service or a service product definition.

 
A template that is in the hands of OEM, which is used by the dealers to provide the service in that particular format is not something which leads the dealerships to have a proprietary ownership of the type of services that the dealerships offer. Is therefore a way by which the dealerships conceptually can move from a tier two level to a tier one level where they have a proprietary ownership of the offerings, such as, customer affinity programmes that they offer? Is there something that is capable of being developed as an IPR for the dealerships?

The second question follows the first one. If you have to differentiate your product or service offerings in a manner where you can say that it is something unique to you, what is it that you will hang on to, i.e. the value addition that you will make in your process of delivery? To my mind, the issue is of using technology; the choice and the use of technology to understand the customer. Our understanding of customer is still at a very superficial level. We have not been able to penetrate sufficiently despite the availability of technology to understand customer behaviour, the type of lifestyles that the customers have, the kind of demands that those lifestyles will make on the product features, etc. Our understanding of customer is still at an intuitive, non-analytical, non-technology driven level.

The moment you are able to take this down to a penetrative technology driven, analytical kind of information about customer behaviour whether individually or collectively as a group, much like what a banking & insurance services or a credit card company does, that will then form the basis of using that information for different markets or adding value to the OEM in terms of the services that the dealerships can offer at different situations and in different markets. I think, it is very relevant to think about this because unless you are in a position to move up in terms of adding value, not in a manner where you say, "I am able to retain and hold these customers and therefore able to deliver this value." This is not going to work for long. There must be a more analytical and technology driven way of understanding customers, that, to my mind is the value addition. Each dealership has therefore to look at how to put its finger on the differentiating factor.

The last part of this is the fact that, it must be scalable. If you don't have a formula that is scalable, then you may not be able to add value to the OEMs. But I do believe that both these issues will find affirmative answers here. To my mind, this is the next level of strategy that dealerships will have to think about.

I believe, there is a great deal of value that can be added by an association of the nature of FADA which can bring about realisation about the usefulness of deploying technology for customer analysis and customer affinity. To my mind, that is the kind of road forward in order to make sure that all the four wheels travel together. That would be a unique proposition coming out of the Indian auto industry aspiring to move further, beyond the frontiers of this country.

▪	A way must be found by which. the dealerships conceptually can move from a tier-two level to a tier-one level, where they have a proprietary ownership of the type of their offerings.
▪	Our understanding of customer is still at an intuitive, non-analytical, non-technology driven level.
▪	Each dealership has to look at how to put its finger on the differentiating factor.
▪	If you don't have a formula that is scalable, then you may not be able to add value to the OEMs.

 
I must conclude by saying that I have seen FADA in the last few years and the kind of activities that you have taken up. I know the path breaking efforts that you are all making. It is not beyond you to think of a unique way of performance, or develop a new watermark in terms of auto dealerships and I do urge, you take up that task.

Thanks again for giving me this opportunity.