India’s passenger car dealers, currently grappling with the impact of the slowdown, will have to prepare to handle two key issues going forward.
04 Jun 2014 | 2935 Views | By Brian de Souza
India’s passenger car dealers, currently grappling with the impact of the slowdown, will have to prepare to handle two key issues going forward. The first is handling obsolete parts (which becomes important as marques/platforms are rationalised) and secondly, facilitating the exit of a dealer in a friendly, transparent manner as ...
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India’s passenger car dealers, currently grappling with the impact of the slowdown, will have to prepare to handle two key issues going forward. The first is handling obsolete parts (which becomes important as marques/platforms are rationalised) and secondly, facilitating the exit of a dealer in a friendly, transparent manner as new dealers enter the fray or existing family-run dealers look at new businesses.
These comments were made by V G Ramakrishnan, managing director, South Asia, Frost & Sullivan (F&S), at a press briefing on the best practices for passenger car dealerships in Mumbai today. He provided a wide view of the best practices that dealers could follow based on a six- month study that F&S was commissioned to do by FADA (Federation of Automobile Dealers Association).
The two issues were part of a presentation on the six best practices that also include vehicle inventory management (by far the most significant), network expansion, dealer business viability and viability support during a recession.
The six-month study, conducted between June and December 2013, included interviewing 60 channel partners of 10 OEMs and conducting detailed interviews with key staff. F&S admitted that not all dealers were forthcoming in their inputs, nevertheless, the consultancy had identified salient issues. These dealers were located in six key cities including metros and Tier 1s.
F&S’s findings were as follows:
Toyota excelled in vehicle inventory management helping its dealers keep inventories under 20 day and facilitating the inter-dealer transfer of vehicle stocks, among other things.
Network Expansion: Consulting existing dealers in an area prior to opening a new one helps, F&S said. Here too, Toyota did it best, offering new potential dealers the first right of refusal.
Dealership viability: OEMs can help a dealer monitor costs, thus keeping overall costs in check and helping viability. Here too, Toyota can show the way forward, F&S indicated.
Viability support in a recession: Here Tata Motors scored on top as it has given dealers support in manpower and logistics training as well as provided free credit for 28 days, among other things.
In issues concerning policy on obsolete parts, Tata Motors scored tops with its policy to handle the buyback of such parts at discounted prices and in facilitating dealer exit via a document policy, Ford Motor India had the ideal model, F&S said, helping a dealer to exit without having to carry the burden of heavy losses.
In his opening remarks, Nikunj Sanghi, director, International Affairs, FADA, said the country’s dealers have been affected by high real estate and manpower costs, the latter having gone up by five times in a three-year period. In a larger context, he said OEs have to take a re-look at the current distribution model and looks for ways to make it more friendly, global and contemporary.
Putting a figure to these issues, Ramakrishnan said that the expenses-to-revenue ratio for dealers has gone up to 10.6 percent as against an ideal ratio of 5-7 percent. Costs of manpower and interest costs on a CAGR basis has gone up by 24 percent and 31.8 percent respectively.
Sanghi also added on its part, FADA is looking at setting up verticals that deal with two- and three-wheelers as well as commercial vehicles.
The heartening factor is that OEs are realising that their business relationships with their dealers are important. In fact, Ramakrishnan underscored this point saying that dealers are among the top three concerns of OEMs today.
He added that dealership viability in a changing auto industry will mean that dealers who keep up with the technological aspects of the business and handle the digital impact (e-retailing, internet impact) will be likely more successful than those who do not.