Managing and Sustaining Growth is a Major Challenge

India is poised to grow and the biggest challenge would be to manage and sustain the growth. Since a vast majority of automobile dealerships in India are family owned businesses, developing leadership with a clear-cut succession process is critical for survival of family businesses. The quality of manpower in a dealership and use of technology with appropriate reporting systems will be a big differentiating factor in this highly competitive environment, were the highlights of deliberations of the FADAs 6th Auto Summit held on 8th & 9th January 2010 at New Delhi.

Inaugurating the Summit, Kamal Nath, Union Minister of Road Transport and Highways, Government of India was happy to note that Indian automobile industry was making rapid strides and emerging as a major global player as reflected in the number of global car launches and new models rolled out at the 10th Auto Expo. He said that managing growth was a big challenge. “Infrastructure deficit is the challenge that is being addressed by the Government with all seriousness. Of various projects, the road infrastructure development, which will not only remove impediments in the path of sustained growth of auto industry but will also bring about all-inclusive growth, is being put on the fast track by his Ministry. The Government plans to build 7,000 kilometres of roads annually and 20 kms per day, entailing a huge investment of Rs. 200,000 crores per annum. To build 7,000 kilometres in one year necessitates ongoing projects of 22,000 kilometres of road development at any given point of time.” Assuring that the Government is moving ahead with a sense of urgency, he said, “You give us the world class vehicles, we will give you world class roads.”

The Minister informed that the extensive review of Motor Vehicles Act was under way to ensure seamless travel and to attune it with the changing realities. He assured that periodic inspection & certification of all categories of vehicles was under active consideration of his Ministry.

In his address as the Chief Guest, Pawan Munjal, MD, Hero Honda scanned the scenario of the previous decade since 2000 and provided a look into the crystal ball to predict the forces and trends that will shape the next decade. He said that the last 10 game changing years have witnessed paradigm shift in terms of the customer being spoilt for choice, rising incomes for a majority of Indians and strong consumer pull, exhilarating shopping experience for customers in the form of big retail stores and malls, advent of IT and internet in a big way, changing lifestyles and new lingo, sophistication in vehicle technology and sleek & smart designs, and rising aspirations of rural population. Visualising the scenario in the future, Munjal said that the next decade would see: More collaborations among manufacturers; key technological changes arising out of the tighter emission & safety norms due to growing concerns for the safety, environment and climate change; changes in retail format in the form of multiple franchise stores and service stations; the increasing customisation and host of innovations in production processes & marketing with IT & internet becoming all-pervasive; and new service and retail benchmarks. He foresaw India becoming the third largest economy in future with automotive industry playing a pivotal role.

Dr Pawan Goenka, President, SIAM and President, M&M (Automotive Sector) delivering the keynote address, noted that the FY08-09 had witnessed the deepest downturn in the history of Indian automotive industry. Though the market had grown by a healthy 18% during the calendar year 2009, there was a need to exercise caution in that this 18% growth had been achieved in a span of two years, with year 2008 being virtually flat. While the Indian automotive industry was behind the targets set out in the Automotive Mission Plan 2016, he felt confident that with Indian economy coming out of the slowdown sooner than expected and clocking 7-8% growth in the next 5-6 years, the increased pace of growth hereon would help to meet the targets of AMP.

While painting a rosy outlook for Indian auto industry due to various positive factors such as decent GDP growth rate, changing lifestyles, emergence of new segments, rural prosperity & penetration, good performance on export front and improvement in infrastructure, Dr Goenka felt that the growth was expected to bring in multiple complexities in its wake, for which we must prepare ourselves. He brought forth the concept of 'Zero Trauma Corporations', under which not only are the automobile manufacturers and the dealers insulated from uncertainties in the environment, it is a zero-trauma for the customers as well.

He exhorted automobile dealers to maintain the consistency in sale and service and not to become mechanical while dealing with their customers. Dealerships must provide customary and local touch & feel in customer relations. Elaborating, he said that instead of Mr Sharma, the customer could be addressed as Sharma ji. Similarly, it could be Venkatraman Ayya in place of Mr Venkatraman. The same way, a local touch & feel was necessary in the case of a rural customer, who needed to be treated differently from a city customer.

Edward Tonkin, 2010 Chairman, NADA in his presentation highlighted the severe downturn witnessed by the American automobile market, which went down by 21 % y-o-y to 10.4 million units during the year 2009 from a peak of 17.4 million in 2000, leading to closure of 1,500 automobile dealerships in USA. During the year 2009, the month of August, helped by the 'Cash for Clunkers' program that saw 690,000 old, inefficient, polluting vehicles being traded in for the new vehicles was the best month for the US market, with sales at 1.2 million units. Only 3 brands, namely, Sabaru, Kia and Hyundai witnessed growth during the year 2009, all other brands being in negative territory.

Emphasising the active role played by NADA during the severe recession, Tonkin said that the proposal for 'Cash for Clunkers' program was initiated by NADA. He highlighted the importance of automobile dealerships in the national economy in terms of their contribution to the GDP & the State exchequer by way of taxes on motor vehicles, employment generation and facilitating mobility. Tonkin felt that the Government and the politicians needed to be educated on the contribution of auto retail to the society. While stressing on the continuous manufacturer-dealer dialogue for mutual success, he was of the view that there was need to put in place franchise laws in India on the lines of franchise laws in force in USA, with a view to maintaining balance of power and avoiding unfair terminations.

In another presentation, Tonkin highlighted that 10 top dealer groups in the US: (i) Sold over 1 million new vehicles in 2008 - 13% of industry volume; (ii) sold over 660,000 used vehicles; (iii) operated 933 dealerships; (iv) accounted for $52 billion in departmental revenue; and (v) six of top ten were publicly traded. Those having a number of franchises were able to counter the recession better than the dealers with single franchise, he added.

The interactive sessions, scheduled as a part of the programme of Auto Summit 201 0 saw engrossing discussion on issues of concern to automobile dealers. Major findings emerging from the interactive sessions are: (i) A CV customer is different from other vehicle buyers inasmuch as he/she does not buy a vehicle for self-use; (ii) A CV customer expects a total package including his/her finance requirements, which takes care of his/her profitability; (iii) Specific needs of a city will determine the kind of buses it requires for its intra-city and intercity public transport; (iv) Relations building is the key to owning and retaining customers; (v) Say right things with passion and deliver the brand experience to the customers; (vi) Rapidly changing face of logistics necessitates that the roads and vehicles keep pace with the changing needs of logistics providers; in other words, managing diverse needs is a challenge; (vii) With mounting claims arising out of road accidents, insurance companies are tightening screws; hence, it is imperative for all stakeholders to come together to create awareness on safe motoring and road safety for sustainable growth; (viii) Hire right people with attitude to learn and train them and do not necessarily employ high-profile people with merit; (ix) Strengthen balance-sheets, as only healthy balance sheets will provide access to infrastructure & working capital finance at competitive rates, especially with BASEL II norms coming in; (x) Strengthen reporting systems that give warning signals early for timely remedial action; (xi) Think ahead and prepare for the next level of growth; (xii) Strengthen and streamline processes & systems using technology; (xiii) Improve the quality of implementation and avoid transmission losses; (xiv) Strengthen CRM for attracting and retaining customers; (xv) Explore untapped markets beyond metros and tap allied business opportunities; and (xvi) In nutshell, focus essentially on fundamentals.

The event kicked off in the morning on 8th Jan'10 with a session on Family Owned Dealerships - Leaderships and Succession with two distinguished speakers, namely R Haresh of TV Sundram Iyengar & Sons and Anil Sainani of S&S Empowering Solutions sharing their views and experiences.

It emerged that only 30% of family owned businesses survive in the same shareholding pattern after first generation and merely 10-12% after the second generation, although the data shows that family controlled businesses fetch in better returns and enjoy a higher perceived market quality. Those who are able to survive after the 3rd generation acquire the halo of institution. The reason for disintegration of family controlled businesses essentially is that there are no well-defined policies and processes for grooming and developing successor and dividend distribution. Absence of a process for succession stems from the existing leadership's fear of losing stature in the society and social security after the exit and the succession creating bitterness and bad blood among the family members.

To ensure that the family controlled business survives generations and becomes an institution, it is essential that the succession is carefully and timely planned by putting in place a process, which should include taking into confidence the spouse and kith & kin of outgoing leadership and other family members. The outcome of a process is more likely to be accepted by the family members. What is more important is not the selection of successor, but selecting a process.

The 6th Auto Summit came up with a new format in that six separate workshops were scheduled as a part of the programme, which focussed on nuts and bolts of day-to-day dealership management and how to increase revenues and profitability. The topics covered by the workshops were: Used Vehicle Business; Increasing Revenue from Workshop; Increasing Revenue from Channel Partners; Using Internet as Marketing Tool; Manpower Planning & HRD; and Dealership Management Information Systems (MIS). Highlights of the Group Discussions are as follows:

Used Vehicle Business

▪	Used car market has been growing at a CAGR of 20% in the last 5 years.
▪	About 90% of car sales in US and Japan take place through exchange.
▪	34% of new car sales in India are replacement car sales.
▪	There is a huge potential from used car sales as the replacement cycle has shrunk from 10 years to 5 years.
▪	Only 16% of used car sales take place in the organised sector; hence, a big business opportunity awaits players in the organised sector.
▪	Used car business & exchange programme helps in increasing new car sales, acquiring new customers and retaining existing customers, thereby reducing the sales promotion costs.

 
Increasing Revenue from Workshop

▪	Car parc in India is likely to increase from 11 million in 2008 to 19 million in 2015; hence, after-sales service presents a significant business opportunity.
▪	48% of dealership profitability is contributed by after sales service.
▪	Customer satisfaction with after-sales service gives an edge to the dealerships over their competitors; Service Satisfaction Index is an important tool for customer ownership and retention, as a satisfied customer remains loyal and recommends others to the same dealership for the purchase of new cars.
▪	Improving productivity through mechanisation and reducing costs by use of energy-efficient/saving devices can help a great deal in increasing workshop revenues.
▪	After-sales service activity acts as a cushion against the impact of downturn and help increase spare parts and accessory sales.
▪	Giving demos, organising service camps, engaging customers through regular communications act as marketing tools for increasing workshop revenues.

 
Manpower Planning & HRD

▪	Growing auto market and increasing dealer network is leading to poaching and shortage of trained manpower.
▪	To ensure that a dealership has right talent and adequate manpower, a well-defined transparent HR policy encompassing a sound recruitment process, induction, training and career growth path for employees is necessary.
▪	Conducting exit interviews can help correct the process and reduce attrition.
▪	Engaging employees is essential for customer satisfaction, as only satisfied employees can deliver customer satisfaction.

 
Internet as a Marketing Tool

▪	With the pervasion of Internet, more and more customers are using Internet for doing research on vehicles suiting their needs and in decision-making.
▪	Internet would be a major information-accessing tool in future, as it is convenient and saves time.
▪	Virtual online showrooms are the need of the hour.
▪	While people may do research on products, features and prices on Internet, actual sales will happen only at the dealerships, as the customers like to have the feel and test-drive the vehicles before actually buying.

 
Increasing Revenues from Retail Channel Partners

▪	Long-term tie-ups with -Insurance, Finance, Tyre, Paint, Lube and Accessory companies help generate upfront income and fund infrastructure costs.
▪	A medium sized dealer can earn up to 10-12 lakh per month from such tie-ups, without any initial capital cost.

 
Dealership Management Information System (MIS)

▪	Dealers do not have much say in the Dealership Management System sponsored by the manufacturers.
▪	An effective reporting system catches symptoms early and help take timely corrective action, apart from increasing efficiency and productivity.
▪	Dealer Performance Reporting and Benchmarking is a common practice in developed markets, as it helps dealers identify profit improvement opportunities.
▪	In India, benchmarking based on best practices obtaining across the industry has not been possible due to lack of data and reluctance on the part of dealers to share and exchange data. However, few manufacturers in India have initiated the exercise among their dealers.
▪	It will be necessary for dealers to scale up, as otherwise they will be gobbled up by the bigger players. Scaling up will necessitate an effective Management Information System (MIS).

 
A new feature of Auto Summit 2010 was the presentation of Automotive Dealership Excellence Awards (ADEA), instituted by Auto Monitor in association with FADA to recognise and reward automobile dealers who have excelled in various areas of dealership management. The awards were presented at a gala ceremony in the evening on 8th January 2010. Dr Brijmohan Lall, Madhur Bajaj, Edward Tonkin, Dmitry Gulin, Evaldo Costa and Liam Donnelly of BNP Paribas Group, among other distinguished guests, graced the occasion. The validation and selection process was developed and handled by CARE who methodically went about the task of screening a large number of nominations received for 13 awards at stake, for the jury to take a final decision.