New Delhi: The relationship between the automobile manufacturers and their dealer partners is like marriage. It requires trust, mutual respect and a win-win situation, according to the industry stakeholders at the panel discussion of the third Auto Retail Conclave organised by the Federation of Automobile Dealers Associations (FADA) on Tuesday.
“Dealers are married to the brand. We are the true custodians of the brand image of any manufacturer,” Santosh John Rodrigues, dealer principal, Karnataka Agencies, said.
Yadvinder Singh Guleria, director, sales and marketing, Honda Motorcycles & Scooters India (HMSI), said that like any other relationship, the relationship between dealers and OEMs also needs TRP- trustworthiness, responsiveness and problem solving. But since this is business, if the expansion of wealth is not happening over a period of time it may create problems.
The relationship has to be open-minded, one must not think in black and white. For instance, during the COVID wave 1 and 2, the dealer- OEM relationship reached an inflection point where it was tested to its limits. But they survived together and the bond has become stronger during the past two years, he said.
Raising some fundamental issues that the dealers face on-ground, Samir Choudhry, dealer principal, Trident Automobiles, said, “If you look at the dealer agreements, most of them are one-sided and have clauses for dealers but not for manufacturers, so how can the relationship be of honour and mutual respect?”
“If you look at a certain dealership agreement from 1954, the clause remains the same even today. It is always the dealer who needs to take permission from the OEM in case they want to take up another brand, but the manufacturer can assign the agreement to anyone without consulting the dealer,” he said.
Shashank Srivastava, executive director, Maruti Suzuki India Limited (MSIL) said, “Our relationship with the dealer starts before the contract is signed. We have a long courtship period before we enter into the marriage. In our case, divorce is also equal. A dealer can quit without reason, and same is with the manufacturer. In this sense, it is equal.”
Consulting committees
Vinod Aggarwal, managing director & CEO, VE Commercial Vehicle (VECV), said, “We have had an apex consulting committee since 1985 to work closely with the dealers. It consists of top 15-20 dealers, representing a microcosm of all the dealers in the country. We meet periodically for better engagement, understanding with the community, and directly connect the top management with on-ground dealer principals.”
Similarly, MSIL also has different dealer committees, Srivastava said. One of them is called Lakshya which is a group of 25 dealers from across India. “We also have representation from different zones, there are sets of larger dealers and dealers with slightly lower volumes. We have a group for next generation dealers also. I think OEMs need to focus on not just dealer satisfaction, but dealership satisfaction.”
There is not a single dealer who has left us on their own accord in our 40 years of existence. There might be termination or financial issues, but they have never left us by themselves, he added.
But the problem, according to Samir Choudhury, is that almost 99% of dealers are scared to open their mouths before the manufacturers, fearing retribution. “Manufacturers need to understand that we are on the same side. If their job is to manufacture, our job is to sell and service. If we have this divide between you and us, the relationship cannot improve.”
Inequity in brand display, business strategy
Rodrigues pointed out that dealers make huge investments in products but they don’t even have a say in the product positioning or pricing. They also sign up for good real estate for the brand. But sadly, some of the OEMs have moved towards brandless boards where the dealership brand is being compromised for the OEM brand display. “There are lots of efforts that dealerships put in especially in local areas, so why are the dealership brands being compromised?,” he questioned.
Choudhry added that most of the manufacturers tell the dealers what to do all the time based on some statistical data. “Dealers have learned and grown in the business over the years. Some of them have generations of experience and they have well developed business strategies. Though the dealers are happy to get inputs and analytical points, none would want an area manager who has hardly a year of experience to tell them how to sell a car.”
Srivastava from MSIL agreed, “I think dealers are mature enough to make the best decisions about selling a vehicle. Manufacturers have a lot of work to do to train their own people in this area.”
On unequal footing
Rajeev Chaba, president and MD, MG Motor India, said that we should accept the fact that manufacturers look down upon dealers. “This whole relationship is very primitive and the kind of relationship that was established years ago continues without any resetting. This is because the new generation is not given new training. For instance, a young area manager starts thinking he/she has huge powers over the dealer principal. Same is with the dealers – they fear speaking up because at some point of time there is a question about incentives, target setting, and allocation.”
“It is the job of manufacturers to train the field managers and area managers. On the other hand, dealers need to speak without fear,” he said.
According to Srivastava, expectations and satisfaction levels from the dealers depend on volumes, extent of operations, complexity of markets and product portfolio. The number one criterion for dealer satisfaction that manufacturers should have is profitability, followed by participation of all the dealers in decision-making.
Chaba said that both sides have to understand that it is not a one way stream. “The core DNA of the relationship between dealers and OEMs is trust, mutual respect, collaboration and effort to find a win-win solution,” he said.
Direct-to-consumer model
With the advent of digitisation, the dynamics of retail business are changing. In a direct-to-consumer (D2C) business model, brands sell directly to the end-customer. In June this year, luxury carmaker Mercedes-Benz India announced a unique D2C sales model for the future to offer a better buying experience to its customers. Recently, EV maker Ola also said that it will deliver its e-scooters directly to the buyers.
About this new business model Chaba said, “The manufacturer can save the margin on inventories, but for the dealer who is servicing, the margin will get adjusted accordingly. Ultimately, we need to look at the terms of conditions of the agreement.”
“The problem is with the older players; for them the transition would be hard as they will require a lot of hand-holding and collaborations. The model would be easier for new players,” he added.
Guleria of HMSI said, “If you are new and want to get noticed, you have to do something innovative. The model will evolve in the next 5-10 years but to see how far it will evolve, the manufacturers who have a legacy of years will have to wait and watch.”
