All about Automobile Dealerships – Part 4

Do read through the Part 1, Part 2 and Part 3 before going through this article for better understanding.

In this post; we shall be highlighting the relationship of the OEMs with the Channel Partners (Dealerships). For over 100 years, Automobile Manufacturers have established dealerships as their channel partner to sell their product to the end consumers. Dealerships were able to take advantage of their local know-how and connections to sell, service and supply parts for their vehicles. Even though the dealership model has matured and operations have become more sophisticated, but the basic business model has remained remarkably unchanged.

In Part 3; we have highlighted in detail on how the automobile retail is a challenging, low-margin business that requires the consistent leverage of all available revenue opportunities (New Car sales, After Sales, Used Cars, Finance, Insurance, etc.). We shall now showcase how the OEMs can be frugal in terms of handholding dealerships to identify and capture these revenue opportunities. But; as usual lets start with the basics –

  • Selection of dealerships – 

As highlighted earlier; OEMs select channel partners at the respective territories by a screening program by the dealer development team. The OEMs present a business case to the dealership owners highlighting the business plan in terms of volumes and profitability. On assessment of the same; the dealership owners can decide if they want to associate with the particular OEM or not and put forward the interest proposal. On receiving proposals from different parties; OEMs shortlist a partner/dealer for the respective territory. An agreement is thus signed between the OEM and the dealership highlighting the clauses in which both the parties shall operate.

  • Mutual Dependence between OEMs and Dealerships – 

Do note here that the Dealership is the ‘first customer‘ of the OEM. Basis the promise of the OEM brand; Dealer Owners invest a hefty amount to provide the infrastructure as per the standards laid down by the manufacturer. Accounting the business proposition; the dealership then moves forward to recruit the slew of manpower as recommended by the OEM. Finally once the operation starts; the dealership also purchases the required levels of inventory as mandated by the OEM.

Though OEM and Dealerships are independent business entities; we shall now how dependent the dealers can be on the OEM:

– OEMs control a very significant portion of what the dealership does and how they do it. OEMs first release the Corporate Identity guidelines basis which the infrastructure (external & internal) needs to be built.

– OEMs then define the manpower across the channel that the dealership needs to employ. Dealership being a manpower intensive business; the requirement can go to a crazy higher levels. Do read Part 2 for details.

– OEMs share a set of guidelines / Process Manuals highlighting the Standard Operating Procedures that the dealership needs to operate in. The same is being implemented at the dealerships by the support of OEM representatives (the respective Area Incharges).

– Vehicle Stock, Service Compliance, Parts/Accessories Supply is completely dependent on the OEMs. OEMs designated Territory / Area Sales Manager, Parts and Service Manager, Customer Satisfaction Manager and higher ups control completely these operations under the OEMs command.

– OEMs review the dealerships time-to-time and consult them on identifying/improving the revenue streams (New Car sales, After Sales, Used Cars, Finance, Insurance, etc.). The OEMs having stronger association with dealerships on their operations convert to higher viability and business efficiency.

Now let’s lay down how OEMs are rather dependent on the dealer partners – 

> Dealerships are the face of the respective OEMs. The entire customer experience is at the dealership end. Any slight glitch in the customer experience ends up as a deterrent to the overall brand itself.

> Dealerships operational efficiency results in a lot of benefits – right from faster/higher inventory movement to ensuring the right market share for the model in the territory.

  • Financial Relationship between the OEMs and Dealerships –

A dealership borrows money from either a bank or from the manufacturer’s financing arm, to pay the manufacturer / OEM for the vehicles they order. Basically, ‘Inventory Funding’ / ‘Working Capital’ is the term used for the money dealership primarily borrows from the financial institution. The extent of the Working Capital borrowed by the dealership is also majorly as advised by the OEM. The Dealership borrows money at an average interest cost of roughly upto 9% from the financial institution. Hence if a vehicle dealership carries an inventory of 100 vehicles for a month and the average value of the vehicle is Rs.10 Lakh – Dealership shall end up paying Rs.7 Lakhs as interest cost itself! That’s the reason you can also see that the longer a vehicle sits on the dealer’s stock, the more that dealer is anxious to move it.

The OEMs also provide incentives (and sometimes dis-incentives) to the dealerships to move certain models / variants, certain options, certain add-ons like extended warranties and in certain time periods. The OEMs many a times need to act as a parent and levy financial support to aid dealer to run business. Even in the recent times; we have seen that many OEMs are offering financial assistance to their dealer partners to survive the impact of the Covid outbreak.

  • Distress between the OEM and Dealerships – 

This is commonly seen in all forms of businesses. Difference in opinions can be devastating to business. Even in automobile industry the scenario erupts primarily due to  – 1. OEMs excessive pressure on increasing volumes / gaining market share 2. Dealerships sole motive of profitability / reducing relevant investments and compromising customer experience. Unless a common goal / objective is established between the OEMs and Dealerships; distress can hamper the overall business operations.

Ethics in business is of paramount importance and all parties need to embrace it. Brands where the OEMs and dealerships have synced to a common goal; simply perform the best!



Conclusion:

OEMs and Dealerships now need to thrive by putting the customer at the center and pursuing dynamic, new ways of working. Owing to the Covid outbreak, the automobile sector is now in a brink of disruption and requires both OEMs & dealerships to review their own operating model, improve operational efficiencies and finally discover new ways to operate in a digital, omni-channel environment. There is a famous quote ‘Retail is all about Detail’ which stands true for automobile sector as well. Delighted Consumers, prosperous dealerships and Profitable OEMs can only exist when the right role holders focus relentlessly on optimizing their co-operation by ensuring network, wholesale and retail process optimization. We also recommend that Automobile Dealerships must find a balance between protecting their existing business while finding growth in what is becoming a disruptive space.  Dealerships should focus on growing through better insights, capturing new revenue streams in adjacent markets while implementing operational improvements and digitizing traditional segments.

What is a Horsepower?

We have been using the term Horsepower (hp), quite very frequently to define the power of an automobile. But; what exactly is Horsepower? We found an extremely cool infographic in Jalopnik and sharing here for reference.  Let’s first got through the wikipedia definition – Horsepower (hp) is a unit of measurement of power, or the rate at which work is done, usually in reference to the output of engines or motors. The term was adopted in the late 18th century by Scottish engineer James Watt to compare the output of steam engines with the power of draft horses. It was later expanded to include the output power of other types of piston engines, as well as turbines, electric motors and other machinery.

Diesel Cars Sales Trend – India

Right from a peak of 54% in 2012; Diesel Cars penetration fell to 33% in 2019!

  • Do note that Diesel as a fuel was highly subsidized in 2012; the price difference of diesel over petrol was as high as 70% that time!
  • Having a diesel model in portfolio was extremely necessary for the OEMs to be successful in the Indian market. Even the likes of Honda who had only Petrol powered cars; had to launch diesel option in 2013. Honda launched the Amaze with diesel engine option in 2013 owing to the customers preference.
  • However; the government reduced the subsidy on the diesel over the years. This led to the narrowing price gap in petrol diesel price.
  • Low price difference between petrol v/s diesel and low running cost of diesel was not good enough to offset higher purchase cost of diesel cars over petrol ones.
  • With the influx of BS6 technology; the cost of manufacturing a BS6 diesel shot up extremely high and many manufacturers moved away from Diesel.
  • The diesel vehicle penetration is going to even dip much further in 2020; as Maruti & Renault have moved to Petrol only portfolio. Pl note that Maruti alone had sold 3,34,191 diesel cars in 2019 (out of 9,69,159 diesel cars sold). Link




So; what is the fate of Diesel Cars? – 

  • Diesel will still be preferred choice for large MUV and SUV buyers owing to the higher torque and grunt available in Diesel Cars. That’s why Mercedes was one of the first companies in India to bring a BS6 diesel.
  • Customers will be resilient to buy small cars with diesel as it’ll be higher priced then the petrol variants. Slowly smaller cars shall give away diesel engines.
  • Innovation will be key – If OEMs could match Diesel Variants with Petrol counterparts; it shall work wonders! That shall be the perfect recipe to fight market leader Maruti as well.

(The article is written by Rohan Rishi. You can connect with him at emailrohanrishi@gmail.com)

Honda Jazz / Fit – A global success, but what went wrong in India? – Report

Honda Fit/Jazz has been the Japanese OEM’s best selling hatchback in the world! But, what happened in India?

Honda Jazz which is known as ‘Fit’in global markets,  is a five-door B-segment hatchback manufactured since 2001 and now in its fourth generation. It is currently sold globally and manufactured at ten plants in eight countries! Honda primarily uses the “Jazz” nameplate in markets such as Europe, Oceania, the Middle East, Africa, Hong Kong, Macau, Malaysia, Indonesia, the Philippines, Thailand, Singapore and India; while the name “Fit” is used in Japan, Sri Lanka, China, Taiwan and the US. The cumulative sales is across 70 Lakh units among Honda’s top markets!

  • The first generation Fit/Jazz debuted in June 2001 at Japan. It won itself the Car of the Year Japan Award.
  • The launch was so successful in Japan that by December 2001, it had outsold Japan’s best selling Toyota Corolla, and ranked first in sales for nine out of twelve months in 2002!
  • With a total sales of 2,50,790 for the year of 2002 – Honda Fit became the best-selling vehicle in Japan, which was a first for a Honda model.
  • The cumulative sales for the Fit in Japan has crossed 28 Lakh units till 2019!
  • China emerged as the second biggest market for the Honda Fit and has sold near to 1.2 million units till end of 2019. Since 2016; China had even overtaken Japanese volumes for the model!
  • Honda Fit/Jazz has been highly successful in Europe and US as well.
  • Honda marketed the Jazz/Fit as “Small is the New Big” campaign. The USP of Jazz was its compact exterior proportions; while it had enough space inside to challenge some compact SUVs for room while getting significantly better fuel economy!

Jazz, a Global Success but in India?

Do note that the India’s best selling Honda was made on the Jazz platform! Yes; the Honda City shared the Honda’s global small car platform on which the Jazz was made. Indian Passenger vehicle market was dominated by hatchbacks and Honda thought that Jazz would be a perfect match for the Indian requirement. But what went wrong? –

  • Honda Jazz was initially launched in India in June 2009. But it came with 26 percent import content and that meant higher pricing for the model.
  • Indians though admired the model; were not ready to pay the premium for a ‘hatchback’! They would pay little more and go for the 3-box City.
  • The model lost on the ‘pricing’ part and wooed the customers away. The decelerating sales led to the discontinuation of the model by Feb 2013.
  • Honda again tried its luck in June 2015 and launched the Next-Gen Jazz. This time Honda was much cautious about the pricing and saw immediate benefit – Honda sold ~30k units in 2015 alone; while it has sold just 23k units in 5 years (previous gen model)!
  • However; Jazz faced tough competition from Suzuki’s Baleno and lost the race in terms of features and value proposition.
  • Maruti Suzuki priced the Baleno and launched it in the Nexa showrooms in October 2015. The higher feature list & lower price of the Baleno swooped the customers away from Jazz.
  • Honda had done another mistake of launching the 1.2 L engine on the petrol. This was not appreciated by Honda enthusiasts and lot of questions were raised on the quality level of the interiors too. Customers were also wary of features like ‘magic seats’ were made exclusive to the top end variant.




Now, Jazz is making an entry in a BS6 avatar with mild update –

The updated version of the Jazz is expected to come with LED headlamps & DRL. The front bumper too seems to be redesigned and shall house LED foglamps as well. The official launch of the BS6 Honda Jazz is likely to be delayed due to the ongoing Corona Virus lockdown situation in the country. Honda shall however launch the car in the coming month. The overall package offered by Jazz has made it one of Honda’s best seller globally and Honda shall now try its best to gain volumes in India as well. Premium Hatchback segment has been widely accepted by Indian consumers and Jazz should definitely not miss the bus.

Source

New models are paving the way for Kia Motors globally!

Kia’s 2 new model launches in 2019 – Telluride & Seltos proved to be game changers for Kia Motors globally!

Kia Motors launched the mid-size crossover Telluride in the American market on February 2019 and garnered humongous success since launch. The Telluride is the largest vehicle Kia has ever produced for the United States. Telluride is offered with 291-horsepower, 3.8L Lambda II gasoline V6 engine paired with an eight-speed automatic transmission, and either front-wheel-drive (FWD) or “Dynamax” all-wheel-drive (AWD) system. Kia was able to sell 58,604 units in 2019 in the US market and even as on date the demand is much higher than supply for the model. It helped Kia register a 4.4% growth in 2019 v/s 2018 even though majority of other models saw a dip.

Kia’s Telluride has earned multiple awards worldwide and was the first model from Kia’s portfolio to earn the ‘World Car of the Year’ title! It also bagged 2020 North American Car of the Year, Motor Trend S20 of the Year 2020, and Car & Driver 2020 10 Best. In the first year of launch; Telluride contributed to almost 10% of Kia’s US volumes! Kia is now set to manufacture 1 Lakh Tellurides in 2020 owing to high demand. Also note that Kia US contributes to almost 21% of Kia’s global volumes and is the biggest market for Kia.

 It is also interesting to see that Soul was the best selling Kia in the United States. It overtook the title from Kia Sorento which was the best selling Kia vehicle in 2018. Do note that Kia ‘Soul’ EV also won the ‘2020 World Urban Car’! The compact Kia Soul EV features a powerful battery-electric powertrain with a choice of 64 or 39.2 kWh battery packs and is able to travel up to 452 kilometers on a single charge.

With sales dipping in the world’s biggest market (China); Kia has shifted focus on emerging markets such as India to maintain growth. 2019 was a tough year for Hyundai Motor Group (which owns Hyundai & Kia). HMG turned in their lowest sales in seven years in 2019, missing their target for a fifth straight time! Hyundai and Kia combined reported a 3 percent drop in their combined global sales to 7.19 million vehicles for 2019, falling short of their target to sell 7.6 million vehicles. Their sales have dipped in China, the world’s biggest auto market, offsetting a recovery in the United States where demand for the newly launched Telluride and a favorable currency exchange rate helped.

Another big launch from Kia’s stable in 2019 was Seltos! The Seltos was launched in South Korea on July 18, 2019, India on August 22, 2019 and in the Philippines on November 6, 2019, with a release in various global markets except Europe by the end of 2019. Seltos was Kia’s first model in the Indian subcontinent and it gave an exemplary launch for the brand. India emerged as the biggest market for Seltos globally and outdid even the sales in home market!

Calendar Year South Korea India China Australia
2019 32,001 45,494 7,414 2,048

Kia sold 45,494 units in India; which was way higher than sales in the South Korean market (32,001 units). Even Seltos bagged multiple awards – Autocar Car of the Year, Tech & Auto SUV of the year, Otomotif Best Low SUV (Indonesia), Team-BHP Car of the Year, AutoX Best of 2019 and many more.

To highlight Seltos’s success in India – Even at an average of 9k units / month it’ll sell 1.08 Lakhs in the entire year which shall be higher than the Best Selling Kia in US (Soul sold 98k units)! Also with a sole model; Kia garnered market share of 1.5% in the Indian market for 2019 (that too with 5 months of operation). The response has now made Kia to look for a second plant! The current plant in Ananthapur (Andhra Pradesh) already has a production capacity of 3 Lakh units per annum. Kia Motors India registered a sale of 85,171 units in FY2020 and contributed to over 13% of Kia’s global volumes in FY20!

Passenger Vehicle sales will be strained in 2020 owing to covid outbreak and will be a survival of the fittest. And fittest would be those OEMs who shall bring new models as per the market requirement.