The media, that includes the social media, is rife with stories, articles and analysis to diagnose the issues ailing the Automobile Industry. We have read and watched different theories aired by eminent panelists indicating that the industry is on the road to recovery. Are we really?
Some of the dealers I spoke with are happy with the current situation. They say, “It’s a blessing in disguise”. Most of them have made ‘operational profit’ during the past 3-4 months. How did they achieve this?
- The Dealerships are operating with one-third of the regular staff
- Cost cut in fuel expenses, because there are no test drives, reflecting in the bottomline
- No tea or coffee in the dealerships
- No newspapers, magazines or reading materials in the customer lounge
- Many have cut the salaries of the remaining employees by 30-50%
- No print ads or advertising and publicity materials like banners and arches
- No physical marketing events and activities
- Some ‘magnanimous’ building owners have waived off the rent for three months because of the threat of vacating the facility by the dealer
- Because of short supply of certain vehicles dealers retained full margin, with no discounts
- Compulsory insurance and finance from the dealer and the payouts adds to the bottomline
One of the dealers exclaimed, “Volumes are less. But I have never seen such profits in the past”.
Another new phrase forced on to our day to day vocabulary during the pandemic is the ‘new normal’. Is this the new normal for the automobile industry which contributes 7% to our GDP and almost 50% to the manufacturing GDP. No other industry has such rich and glamorous heritage, evolving continuously, especially after the book ‘The Machine Which Changed the World’.
Closing down of dealerships have started much before the pandemic. The pandemic has only exacerbated it. Our economy had started slowing down after the demonitization, and it became worse with the implementation of the GST. A large number of MSMEs (Micro, Small and Medium Enterprises) were badly hit. According to FADA (Federation of Automobile Dealers Association) there are over 15,000 dealers with more than 25,000 dealerships across India. The number will be more if we take into account two and three-wheelers, commercial vehicles and tractors. The silver lining is that in spite of the pandemic, the tractor industry is doing well. Pre-owned car sales is also showing an upward trend as expected.
We have started witnessing closure of dealerships in 2018-2019 itself. We have also seen panel discussions by experts in the industry suggesting various strategies like subscription and leasing models to obviate the industry from going into deeper crisis. Car leasing was already there in the corporate sector. Subscription model is a new initiative. We have been seeing online communication of Hyundai, Tata Motors etc for their subscription model. Will it work the way it is intended for in a cash strapped economy?
The industry especially their face to the market and the community have been ailing for quite some time owing to various reasons. Before going into the intangibles let us first discuss the tangibles. The shift from Bharat Stage IV to Bharat Stage VI in emission norms and weak customer sentiments resulted in huge stock pile up at the yards of both the OEMs and dealers. Liquidating this stock before the deadline set by the supreme court was a major concern. Discounts offered to clear the stock made heavy dents in the cashflow of both the parties.
Now, the industry is again in the cusp of a disruption because of the transition to EVs (Electric Vehicles). As far as the EV business is concerned the business model is still in a fluid state. There is no clarity on the charging infrastructure or a unified tax system. It is a consolation that the Delhi Government has exempted registration fees for EVs in Delhi. But, what about the other 28 states?
EQUATION BETWEEN OEMs AND DEALERSHIPS
Now, let me throw some light on the dealership operation and the equation or the power play between the OEMs and dealerships. The Indian market opened up in 1991, which was a licence raj till then. The passenger car market was dominated by Hindustan Motors with almost 80% of the market share for the Ambassador which was the king of the Indian roads. The major player of the balance 20% was Premier Automobiles Ltd (PAL) and other small players. By the end of the 90s, most of the global automobile players established their manufacturing or assembly facilities in India in various states forming a cluster of OEMs.
In the 90s and early in the new millennium, the vehicle supplies did not meet the demand. Some unscrupulous dealers found this shortage as an opportunity to make some extra margin popularly known as ‘ON’ or ‘premium’, reason why the car salesman lost his credibility. If you have seen some of the Hollywood movies, car salesman especially used car salesman was portrayed with low esteem. This evil malpractice continued till more OEMs entered the country and the demand vs supply situation tilted towards more supplies. The Indian consumer was spoiled with a plethora of brands, variants and colours of their dream car, which now became a status symbol. While the hatchbacks ruled the roads, the Indian consumer considered himself as socially arrived only when they had a sedan in their car porch.
THE CHANGING FACE OF BUSINESS
By the turn of the century the industry also began to evolve. With the entry of the new global players the market dynamics also changed and the competition also started heating up. The market became polarised into functional and technology cars. Technology was the main contributor and IOT was becoming ubiquitous. However, there has always been a Technology gap between the OEMs and the dealerships and the quality of manpower and in intangible support.
In the initial period, the dealerships used to attract youngsters with passion and good attitude. Eventually the pull started dwindling for various reasons, the most important among them being ‘target panic’. Other reasons are low salary levels and the way they are treated by their seniors. Review meetings are mainly blame games where the employees are skinned alive. They are told the ‘What’ and not the ‘Why’ and ‘How’. Most of the dealerships neither have any HR team nor HR policies and proper guide lines. Even when they have an HR, their role is only to carry out the statutory formalities. An in-house trainer is considered as a cost and not investment.
Our industry had faced head-on various challenges like the global recession in 2008, the effects of the aftermath of the earthquake in Japan in March 2011 and other natural calamities which affected different regions of our country. Every time it is the resilience of the dealership team which helped the industry to bounce back.
Celebrating their 250 months, Autocar listed 8 Auto brands out of 31 brands, who successfully competed 250 months in the Indian market. Toyota had established their operation in India in 1997 and is still present in the market. I don’t know how Autocar missed out Toyota in their article. Also it will be worthwhile to study the brands which have not made their their presence in the journey of 250 months.
So, what is ailing the passenger car industry, and how do we come out of the situation. Let me enumerate. After the market opened up in 1991, it is almost three decades now, and the industry is undergoing a mid-life crisis. Every industry hits a plateau after thirty years, much as a long distance runner hits a wall at certain point. While the OEMs have all the resources to get over the crisis, laser focus is required on the dealerships which is the face of the OEMs and the brands.
Car retails are not the same all the twelve months in a year. In many traditional markets the sales is seasonal and governed by religious reasons. There were already forecasts about drop in sales owing to the growth of Ride-share.
Even if people engage Ola or Uber for their regular use they will not stop buying cars because personal cars will allow them to see new places with family, old friends and add to a book of memories. This is where the OEMs intervention through their innovative marketing communication is required. We have seen very innovative ads from VW in the initial days of their entry in the Indian market which had helped them firm up their foot in a short period and drive demand.
PEOPLE &TECHNOLOGY, A NEW PHYGITAL WORLD
The next level is training and coaching the dealership team to challenge and adapt the business to the new reality. This is definitely not the New Normal consistently appearing in the media. Homo sapiens cannot continue to survive without interacting with fellow humans. While Technology will be the essence, and dealing with a technocratic society of the future, we should not alienate human touch in products and service. There are many touch-points in the car buying journey, and people prefer face-to-face contact when they make important decisions. They want to look the person in the eye to check his/her attitude, get a feel of the energy level. Personal contact is the only way to take each other’s measure. In an environment of ups and downs, victories and defeats, we need to balance the impersonal technology with a personal and emotional touch, ameliorating those swings and find a rhythm to keep the dealerships running. The new reality will be a mix of Physical + Digital (Phygital).
TOGETHER MOVING FORWARD
Let me now enumerate how we can take the industry forward. I have observed that learning and growing by learning is the most important factor for employee retention in dealerships.
- The team should understand the business environment in totality and acquire business acumen.
- The team should be trained with a sense of foresight about what the economy will look like in future, which means they should get trained in EVs, Hybrids, Autonomous cars etc….
- A dealership is a collection of quality people. While individual skill is important, teamwork translates into corporate power. Collective effort,and the sense of working together brings out the best in people and generates enthusiasm and ideas.
- During a performance review, can we ask, “We want to achieve our goal. What support do you want to achieve this goal?” instead of the usual, “You have not done your numbers last month. Do you think you can do the numbers at least this month?” The former response will create a goal-induced enthusiasm.
- The business environment is on the verge of a change and the future will be rosy with the go-go days of rapid growth. The team should be trained to understand the vagaries of the market and to face the adversity with zeal.
- Proper planning is the bedrock of dealership strength. Get the employees inputs and ideas at the planning stage itself. This will bring in a lot of transparency and pride of involvement in an open management system, moving from managing to enabling.
- Train the team in problem solving by framing the problems and providing resources and empowering them. Articulate a purpose beyond profit in order to help shape a better future.
- Accelerate Digital: While digital transformation isn’t new, many dealerships have not really understood the meaning of digital. Early industrial revolution had introduced new ways of working. Computers changed the way we work during the third industrial revolution. The Fourth Industrial Revolution driven by AI/ML and Data will accelerate the sheer pace of change. This Intelligent revolution will help dealerships to listen more closely to customers and to understand the rapidly evolving needs and for this they must accelerate the spread of digital across their operations for transformation, survival and resilience.
- The increasing automation by AI/ML is promising to transform more tasks and roles, whereby humans will be free to do more creative, people oriented problem solving; where humans are definitely better than the machines.
- The employee experience will improve and it is in this context that OEM intervention requested for preparing for the AI revolution to face the workforce challenges and to embrace automation and future-proof the dealerships from uncertainties.
- Sales people should learn to ask better questions. In schools we were taught how to answer and not to ask questions. But in the new world of sales, being able to ask the right questions is more important than eliciting the right answers.
Sales Manager’s Role: In most of the dealerships the Sales Manager is responsible for the retail numbers and they directly get involved in day-to-day sales . The Sales Managers should actually be spending 60-70% of their time for coaching the team to achieve their goals through the team.
SOME FUTURISTIC TRENDS
Of late I am very much reticent about my predictions. However, let me now touch-upon some futuristic Trends which could directly impact the automotive business. The bedrock of all businesses is building Trust. Buying a vehicle opens up a continuous relationship with the dealer and the brand. Even as the IOT grows for e-commerce most of the consumers will want human interaction in the future. Consumers long for personalised service and meaningful interactions leading to delight. There are many factors that go into building customer trust i.e. visible and obvious factors like the quality of the product or service, customer experience in retail and during service. Consumers have also started taking a peek into the unseen elements like the making of the product, sourcing of raw materials, how the employees are treated, their view toward the environment, animal rights and off late even patriotic reasons.The customers look at the CSR activities and they not only want to ensure that the companies they support are doing the right things, but also to believe it, they need to see behind the curtain as well.
The mission of an enterprises is to contribute to the society. The business environment is on the verge of some seminal changes. We are becoming an information based society. The new growth is in Data Transformation. Consumers have become more aware of the socially relevant topics like racism, ageism, climate changes, global warming, environment, pollution, health care, cruelty to animals etc….
One of the best examples is the story of the stray dog adopted by a Hyundai showroom in Brazil as honorary Sales Consultant. They have named him
‘Tucson Prime’ and is the employee of the year.
These factors are only the tip of the iceberg. Ignoring them would be like the captain of the Titanic saying, “It’s only an iceberg”.
Let me summarise my appeal to the OEMs for their intervention to orchestrate a successful transformation of the dealerships.
- People: If we put people first, the world can emerge from the crisis even stronger
- Culture of Performance, data literacy skills, Data analytical skills and Data science to address the unknown
- Business Process Improvement: Creating learning content for individual learning experience, a culture of continuous learning and real world case studies
- Data & Technology: Realtime analytics, Decision support by AI/ML automation
- Work Culture: Psychological safety, Team learning, Behaviour-focused leadership, Coaching and Growth mindset
- Holistic and Atomistic learning
- Integration of trends and benchmarking
- Competency mapping and Skill matrix
- HR: To drive greater value
While on the subject, I must mention the commendable initiative, REVV UP with ARPRO, Webinars hosted by Automobile Retail Professionals on Sunday mornings. The webinars are quickly developing into a Learning & Development platform for the dealerships if they make use of it effectively. I see a lot of dealership employees attending and actively participating in the webinar. Since the webinar is on Sundays and the recordings are uploaded on the Youtube, I would suggest, the dealership teams to watch the recordings, on a week day, on the big screen assembling in the training rooms, and discuss the learnings, best practices and the take aways. Where else can they gain such diversified thoughts and take aways from across the world and different brands? Hats off to Pro Srikant Rajan and his team for such a wonderful initiative.
There is a general mindset, “If it isn’t broken don’t fix it”. I have presented my thoughts with the latitude and hope that all the stake holders will not wait till the business breaks down. I submit with the solace in the thought that in the near future the dealerships will swing back in operation with the sign:
We are open for business and firing on all the 4 Cylinders
Tail piece: In a survey conducted in 2019 by McKinsey, 60% of the executives interviewed expected half of their employees to be retrained or up skilled in the next five years.
A Gallup study shows that organisations that have made a strategic investment in employee development report 11% greater profitability and are twice as likely to retain their employees.