By Avik Chattopadhyay
Harley-Davidson rode out into the sunset.
Fiat followed suit soon.
General Motors finally accepted the inevitable.
Ford also decided to call it a day.
And the Datsun brand was thankfully given a burial.
All these decisions were not so much a demonstration of market potential as they were of market forces. The fallout is not just closing of the manufacturing operations and employees losing jobs, but also of the entire network suddenly hanging in a vacuum.
Around 190 dealers were rendered hapless when Datsun was closed. The closure process might have been planned systematically by preparing the network partners well in advance. But the decision to withdraw a brand from the market will also impact the employees in the showrooms and service centres and render all infrastructure investments valueless overnight.
The closure of a brand like Datsun itself would have led to at least 7500 unemployed and close to Rs.1000 crore in the latest investments and upgrades as sunk, according to an industry professional that preferred to remain anonymous. Add to this the sheer anxiety it created in the brand customer in terms of serviceability, availability of spares, quality of workmanship and resale value.
The numbers for Ford would be almost double and the trauma and tragedy multiple.
“The impact of an automaker pulling out is on the complete ecosystem starting from the customer. The customers buy automobiles trusting the brands and believing that they would get the required service backed by spare parts at least for the life of the vehicle. Obviously with the pulling out of a brand, this belief and assurance remain unfulfilled. While some automakers do assure that after-sales service would be available, in most cases this remains more a lip service than a reality. What it does to the resale price of the brand is another story.” says Nikunj Sanghi, owner of JS Fourwheel Motors and ex-president of FADA and ASDC.
The FADA website says that there are around 15,000 automobile dealerships across the country catering to customers through 26,500 points of sale and service. The SIAM website has no information on the automobile network. Unless one goes through every auto brand website, one cannot get a consolidated source of real-time numbers. There are portals like BankBazaar, 91wheels, and Autoportal that do attempt some numbers, but one cannot be sure of accuracy.
Low volume mass and medium-level auto brands do not need stand-alone retail networks in a market like India. The age of multibrand retail networks has arrived.
For the sake of my hypothesis, let’s go with the numbers by Autoportal.com. They say that there are 4996 passenger car dealerships in India. Then they share the numbers of each brand. The top 6 car brands, making up for more than 70% of the volumes, account for 50% of the network. The balance 10 car brands, including Ford, that account for only 30% of the volumes make up the other half of the network.
Fringe fighters
The brands with small numbers like Citroen or VW survive on what I call the fringe of the automotive ecosystem. Niche may be a more polite word to use. Their numbers do not justify the investment on the network in terms of spread. There are only two ways to justify network spread: [1] having a tangible brand aspiration as in the case of Skoda, and [2] offering a relevant product portfolio similar to Kia. Merely having a low price point like Datsun, is not reason enough for justifying a wide network, unless backed up with brand and value differentiation. These are necessary, yet not sufficient conditions, to ensure the success of a stand-alone network.
No real differentiation
Frankly speaking, if you walk into a showroom blind-folded and experience the entire sales prospecting process, it is very difficult to tell the difference between a Maruti Suzuki, Hyundai or Tata. The processes are the same. The softer aspects of narrative, tone of voice or any special experience are mostly missing. The difference lies in the name displayed outside and the products presented inside the showroom.
This lack of differentiation is not limited to mass brands. One will experience the same in luxury brands too. Only the quality of the illumination and furniture is different. So, brands spend huge amounts, anywhere between INR12 crore and 20 crore, to set up a showroom that has all the trappings of chrome, glass and leather but no soul! The differentiation lies between one dealer principle and another in customer management and experience.
New formats by legacy brands
Early in 2020, Santosh Iyer of Mercedes-Benz India shared with me his optimism on the digital shop to be launched. By 2021 the ‘Merc from Home’ platform was accounting for 20% of the brand sales. It surely played a key role in spiking the brand’s sales by over 40% from that in 2020.
If a premium or luxury brand can disrupt its own retail format, why can economy and mid-level brands not do the same? The excuse that prospective customers want to come to a showroom to physically see the vehicle before taking a decision does not stand. The prospect wants to experience the vehicle which can very well be done through a test drive, at a place and time of the prospect’s choice. The documentation is digitised not requiring the customer to move out anywhere. A physical showroom is not required at all.
“We surely can go digital the way Merc has gone,” commented a very senior executive of a mass volume automaker. “The smaller cities and towns are more receptive to such initiatives, and it will help us deliver a qualitatively more consistent retail experience to the customer.
EVs show the way
Majority of the players in the electric mobility space are startups or new entrants. Their approach to business will certainly challenge convention and tradition. Therefore, we see the birth of multibrand networks like Electric 1 and Byjli. The smaller scale players have realised early in their lifecycle that they need not have their own stand-alone retail networks but be part of one that will bring the enquiries while ensuring their dedicated brand zones. This allows a tighter control on initial cash-burn without compromising on the retail experience which the aggregator ensures.
Egos over experience
The exclusive showroom was created when other modes of display and demonstration were not available to the automaker. It was essential then. It is egoistic now. It is in direct correlation with the focus on capturing market share rather than mind share.
Network partners are also to blame. Quite a few have misused their partnerships with automakers to extract financial gains. Many have diverted the revenues from the automobile retail business to other businesses, the favourite being real estate. Hugely extended lines of credit offered by automakers have encouraged such financial irregularities by the network partners.
“The biggest ‘plus’ and possibly the only one that I see for a network entrepreneur is the status, recognition, and respect he gains as soon as he gets associated with a brand. This also brings in other opportunities for him,” explains Nikunj Sanghi. “The challenges and uncertainties are numerous. He needs to resolve conflicts of interest of the automaker and the customer as they might not be absolutely aligned. Also, if I recollect correctly, there are nearly 37 statutory obligations that a dealer needs to comply with because it is both and a commercial and an industrial unit.“
With a fundamentally undifferentiated experience being offered to the customer, a stand-alone retail space does not seem to make any strategic sense to any automaker, especially one with low volumes.
Win-win-win
When Harry Huizenga founded AutoNation in 1996, not many in the automobile marketing world expected it to survive for long, leave alone become a USD 20 billion enterprise selling more than 11 million vehicles covering 32 badges from Fiat and Ford to Porsche and Maserati across 300 retail points employing 21,000 people. The formula for its success was simple – offer a unique consumer retail experience through quality and choice. Conflicting brands like Mercedes-Benz and BMW, Infiniti and Acura do not mind standing next to one another on the same floor, assured that none will be under-sold or under-valued.
With a consumer doing most of the research online and by word-of-mouth, offering multiple brands under one roof to make the final decision is immensely logical and financially sound. A stand-alone retail space made sense when information about a specific product was not readily available outside. One had to physically go to a showroom to get them all.
If multibrand retail can happen with consumer durables like electronics and furniture, why can it not happen in automobiles? After all, the consumer experiences the vehicle on the road, and not in a closed space, after purchasing it!
Nikunj Sanghi agrees with my hypothesis saying, “Consolidation of dealerships into larger ones like AutoNation is almost certain. Automobile retail business appears to be a cake-walk but is in fact an extremely complex business model. The complexities are dynamic and are ever-increasing. This is realised by the dealer owners only after getting into the business. With the increasing complexities and the emergence of new business models it will be extremely difficult for small dealerships to remain relevant. I can see a number of mergers and acquisitions in the dealership space going forward.”
It has to be a win-win situation for all. The consumer has to win, first and foremost. The auto brand has to win. And the aggregator also has to win.
Low volume brands will certainly win as the setup costs come down in a multibrand model. One is also assured of higher overall footfalls as prospects come in to have a look at various badges. The brand-specific experience can be delivered in one’s own space on the floor. A prospect walking in to check the VW Taigun can also have a look at the Citroen C5 Aircross which otherwise might not be in the shortlist. The brand might not have a Maison Citroen but surely can put up an Espace Citroen.
The aggregator gets a collection of low volume, but otherwise global brands, to showcase in the setup. Imagine having VW, Mini, Citroen, Nissan, Isuzu, and Lexus in one place! The overall numbers will justify the investment while giving each brand its exclusive space and promotional freedom.
And at the end of the day, the customer wins.
Brands don’t need to pull the plug due to low volumes.
Owners are assured of long-term service and a better resale value.
And the market thrives with more brands trying out this new format of retail.
A senior executive from the mass volume automaker commented, “In spite of our numbers and service base, close to 30% of our dealerships are not profitable even after 4-5 years of operations. Maybe we made them invest too much on the front-end of retail in our drive to have modern showrooms. Having multiple points to cover a territory also hurts in the long run. Consolidation might happen after a certain level of melt-down. Allowing my brand to stand alongside my competitor in a multibrand showroom…cannot imagine it right now, but who knows how the market evolves!”
What seems blasphemous today can become the ritual tomorrow!
