Indian Automotive Aftermarket - seeking new direction

Since last couple of months there are two major reports unveiled on Indian aftermarket. The first one was by CII (Confederation of Indian Industries) the government’s premier front ending agency for Indian industries and McKinsey& Company. The second one by ACMA (Automotive component manufacturer’s Association). The CII report lays out the opportunities that exist within the Aftermarket sector in India and its market size. The ACMA report is trying to indicate the loss for the auto component makers due to counterfeit parts and its effort to educate customers on its impact.

The Indian Automotive industry has come a long way to become a $146billion market in revenues by 2016.  Now India is 2^nd largest two wheeler market, 4^th largest CV market in the world and 3^rd largest PV market in Asia.  However the automotive aftermarket industry has a long way to catch up. I remember the days over 15 years back when people were worried to leave their vehicles at service centers because the feeling was that, once the vehicle enters the workshop it never runs properly. People were skeptic on their original parts being replaced by spurious parts while given for servicing that is sold for a price and fuel being stolen. It was as important to have a good personal relationship with a technician at authorized centre or a neighborhood independent garage as to have a family physician!

Market scenario

According ACMA the Indian Aftermarket is now at around $7.5billion of which aftermarket services accounts for $2billion and the rest in spare parts. However according to the estimate by ACMA, a whopping 1/3 of the component market is plagued with counterfeit parts. So through the excise and other taxes it is estimated that government is loosing about $50million in revenue.

But realistically the counterfeit part problem should correct substantially due to the fact the new vehicle population has increased significantly in last 5 years and the vintage vehicles would be replaced by new vehicles. Earlier due to poor road conditions and high maintenance frequency, the owners most likely opted for cheap alternatives. However now better infrastructure and better quality vehicles on roads; there would be a lot more importance given to genuine parts. The counterfeit issue also is mainly geographical and seems more at semi-urban, rural places where the awareness is less and objective is to spend very less or nothing to maintain the vehicle. ACMA has announced very stringent measures to overcome the issue by developing programs to educate customers, and even planning to conduct raids on outlets promoting the grey market.

Over the years the aftermarket scenario has not changed much in terms dealing with dealers, transparency, expensive spares, lack of customer service mindset except that the market has grown tremendously.  The market is still highly fragmented and long way to move towards getting organized. The service sector is mainly divided between OEM dealers, Authorized service centers, multi-brand service centers, independent garages and road side mechanics. 

The aftermarket is the most significant phase to determine customer loyalty towards a brand. There are incidents where it is proved detrimental to OEMs due to poor aftermarket support. The global giant Fiat, in spite of fielding better cars like Uno and Palio faced the ire of customers for poor spare parts supply and service network clubbed with internal issues like labor during 1997-2004. Its operations in India were almost halted. Issues like high cost and waiting time to acquire the spare parts affected the sales of Ford’s Fiesta, which is a very competent model but lost out to its peers due to poor aftermarket reputation. Ford in India went through tough times in sales in spite of being in India over a decade now, until its launch of Figo. No one can deny the fact that for Maruti Suzuki to have a leadership positions since its existence is its vast service network across India and economical generic spare parts.

In spite of high growth across all segment and brands in industry, Fiat’s recent sales have stagnated or even on downwardly trend. After loosing its dealership network, Fiat was looking for a fresh entry in India market and joined hands with TATA motors. A JV was formed wherein Fiat will provide the engines to TATA cars and TATA will sell/service Fiat cars. In spite of good cars and having good business through it’s engines, the JV is a loss making entity. Fiat has not gained its foot hold, this despite of TATA being 3^rd largest car seller. The dealers form an integral part of OEM’s success and being a FIAT car owner, the primary factor I attribute for Fiat’s issues is its bad marriage with TATA for sales/service. TATA has pathetic reputation of having a CAB culture in its dealer service. TATA’s Indica is the highest selling car that is popularly used in CAB services and its customer service can not handle customer of different segment. My 1.5 years of interface with TATA for a lovely Fiat car has been nothing but frustration, agony and feeling of getting robbed every time I visited their dealer. Fiat has announced recently that it would test its own showrooms as a branding effort but sell the cars through TATA dealers. But this is unlikely to change the scenario since the issue is not for the brand image of Fiat but the sales and support.

I ran a small survey covering 50 individuals (Car owners) through common poll and individual feedbacks to know their preference after the warranty period is over.  The results are pretty much mixed with 60% of respondents sticking to their dealer center and 40% of them deciding to leave them for an independent service provider.

It was not a comprehensive survey as I would have loved to run to analyze it more comprehensively to reason their choice. However the individual comments and feedbacks indicate the reasons.

Few factors that decide for individuals who want to continue at dealer are;

• Increase in technology and electronics involved in modern vehicles make it not possible to move to independent service providers
• Most of the people who decided to stick with dealers own foreign brands like Toyota, Honda. This clearly indicates that it is perceived that local service providers are not competent enough and do not have enough infrastructure
• It is very important to gauge the experience during warranty period to decide to continue at the dealer centers

Majority of respondents who want to go to independent service providers are the owners of vehicles from Indian OEMs.

The challenges and trends

India now has presence of almost all automotive OEMs across all segments and the space is getting narrower between the segments. So the OEM equation is changing rapidly now to gain customer loyalty. OEMs are lining up all sorts of attractive offers like extended warranties, extended free service periods, decreasing the service frequency with new generation oils etc towards minimum cost of ownership. This has not gone down too well with dealer community. With increase in land/wages cost, dealers don’t like to this fact since the warranty replacements don’t fetch them enough margins to sustain according to a works manager at a dealer. The manager forced me literally to pay for a warranty part on my car until I put my foot down firmly and refused pay saying to take it OEM. Finally he opened up with issues dealers are having by replacing the warranty parts. They are under lots of pressure from OEMs with loads of vehicles, increased work hours, with minimum salaries, and can not earn through sales of spares. Incidentally TATA cars recently lost two large dealers with over 10 years of relationship to a German OEM indicates the Indian OEM’s need for re-strategy. 

The aftermarket is facing the same challenge as the whole Indian economy is reeling through; too much growth in too little time leading to insufficient skill sets, no proper processes, customer comes last in the rat race, no priority for customer support/satisfaction since the market is so big and there is no time to improve.

The land prices have increased significantly in India in recent past and complexity of new generation vehicles that need high capital investment in necessary equipments, technology and right set of bays for better payback period. It also can be seen that workforce including customer service are uneducated, unskilled and dealers don’t want to invest in skilled people or training them with a fear of loosing the staff. The skilled people are poached by dealers with foreign brands.

Multi-brand servicing a new trend:

There is clearly a large opportunities exists between branded dealers/ authorized service centers and local garages. This has lead to aftermarket getting more organized with independent service hubs taking retail chain models that serve multi-branded vehicles and offer branded spare parts priced between OEM parts and grey market.

Many big names have entered in to this segment and hopefully these can bridge the gap between the arrogance of dealer centers and hesitance to visit local garages due to spurious spare parts.

Here are some prominent ones present in India now;

Mahindra FirstChoice –  This started as a used car division of Mahindra with certified used car sales and independent car evaluation services. Started in its first multi-brand servicing centre in 2008 under the brand Carxspace  and has presently 9 workshops.

The centre claims full attention to its customers with minimum services handled in a day and claims offer a warranty for next 4000km for any repairs. Night only services sounds interesting concept and it also offers an alternate car to drive when the car is at service.

Mahindra itself is not very popular among mahindra vehicles owners, and is tough to this group to win the trust of independent customers. Advantage is that this is backed by strong Mahindra group and if does reasonably good then has good potential to capture the market.

Carnation –Started by Mr Jagadish Kattar, the person who led Maruti Udyog Limited from 1999 to 2007 started Carnation with a vision to setup a transparent service setup. Probably it needed an industry insider who understands the issues the OEMs face to gain the loyalty with fair aftermarket services.

Carnation seems to be doing all right moves to gain the customer confidence to at least try them. Good marketing (I rate them one of the best online presence), new services like Workshop on Wheel, a mobile service facility that could be a quite handy for corporate or housing societies.  They have tied up with the European aftermarket giant Magneti Marreli for premium cars and also has tied up with the popular India Industrial design house DC design (of  Mr Dilip Chabria) for customized car solutions.

Presently Carnation has 22 centers and operates in both ownership and franchise models. A good control would be needed to hold the vision with franchise model. However there may not be much alternative to capture the market going by its own exclusive hubs that could prove too expensive to expand.

Bosch – Bosch Car Services (BCS), the globally successful model of has been one of the most successful and early movers in this segment. It has around 450 stations operated through franchise model. Bosch in India is an OEM parts and equipment maker has a good integrated model for a better margins.

Castrol – A lubricant major has a line of service centers called PitStop. Its more like a quick check of pre-defined points, or a quick oil changing setup like many popular US chains. However it has given its name to many roadside mechanic shops that use their lubricants. I tried to visit some from the address given by them and could not even distinguish them like an organized center.

With India heading to become 5^th largest automotive nation, the highly fragmented market leaves a lot of space for the new entrants and consolidation. There is large scope to adopt technologies to seamlessly integrate customers within the aftermarket systems for more transparent experience, quick turn around, and preventive maintenance.