prashaste - indian automotive industry - 10 january - copy

8/11/2019 Prashaste - Indian Automotive Industry - 10 January - Copy

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Indian Automotive IndustryConsulting Opportunities with a Focus on Indian Auto Service Sector

10 January 2013

Prepared by

Deepak Pahwa


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Indian Automotive Industry - Overview

64%10%

16%

10%

Tata Motors M&M

Ashok Leyland Others

41%

27%

14%

14%

4%

Hero Bajaj TVS

HMSI Others

58%

33%

9%

Bajaj Auto Piaggio Others

Key takeway In the two wheeler space Hero Moto Corp and Bajaj are the leading players but the market share of these players is expected

to decline in the future as HMSI is expected to gain a significant share in the market especially after the break up ofsuccessful joint venture between Honda Motors and Hero Group.

Maruti Suzuki is the leading player in the passenger vehicle space. The market share of Maruti is also expected to decline asforeign players such as Volkswagen, Nissan, Renault and others are heavily investing in the Indian market and are expected

to grab significant market in the future. Also, as of 2012, Mahindra has overtaken Tata Motors in this space.

15% 5%

3%

77%

Passenger Vehicles

Commercial Vehicles

Three Wheelers

Two Wheelers

Automotive segments Market share(2011-2012)

46%

14%

17%

23%

Maruti Suzuki Hyundai

Tata Motors Others

Market share of major players in different segments (2010)

Commercial Vehicles Passenger VehiclesTwo WheelersThree Wheelers

Source: Society of Indian Automotive Manufacturing (SIAM); Primary research

The Indian Automobile Industry started a new journey since 1991with delicensing of the sector and subsequent opening up for 100 percent FDI. Almost all the global majors have set up their facilities inIndia taking the production of vehicles from 2 million in 1991 to morethan 20 million in 2011-2012. Indian automotive market is the

Largest three wheeler market in the world 2nd largest two wheeler market in the world 7th largest passenger car market in Asia & 10th Largest in the world

4th largest tractor market in the world

5th largest commercial vehicle market in the world 5th largest bus & truck market in the world


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Indian Automotive Industry - Overview

30,47636,612 33,250

43,296

58,583

2006-07 2007-08 2008-09 2009-10 2010-11

Gross Turnover of the Indian Automotive Industry(USD million)

10 11 1111 14

1820

0

5

10

15

20

25PassengerVehicles

CommercialVehicles

Three Wheelers

Two Wheelers

Grand Total

Production Trends (million vehicles)

20

29

47

0

10

20

30

40

50

2011-2012 2015 2020

PassengerVehicles

CommercialVehicles

Two and ThreeWheelers

Grand Total

Production Forecast (million vehicles)

Trends in the Indian auto industry

The gross turnover of the Indian automotiveindustry has increased with a CAGR of 17.75%from 2006 to 2011. It has continuously shownan year on year increase during this periodexcept 2008-09 when it faced a decline in salesrevenue due to the global economic slowdown.

The production of passenger vehicles has shownmaximum growth with a growth rate of almost138% closely followed by commercial vehicleswith a growth of 133% between 2005 and 2012.

The large population growth of more than 20

million a year and the rising living standards aretwo important indicators that logically lead to anincreasing demand for automotives in India.

The Indian automotive market is one of themost competitive markets with low costs, whichmake it an attractive assembly base for foreignautomotive manufacturers

Future Forecast

The Indian automotive industry in expected togrow (in terms of vehicle production) with aCAGR of almost 11 percent till 2020.

The economic growth, population expansion andthe increasing wealth of individuals are keyfactors behind the forecasted growth of the

sector.Source: Society of Indian Automotive Manufacturing (SIAM)


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SWOT Analysis of the Indian Automotive Industry

Strengths Investments by foreign car manufacturers Increase in the export levels Low cost and cheap labor Rise in the working and middle class

income

Large pool of engineers

Weaknesses Production cost are generally higher than

some other Asian countries such as China Low investment in R&D area Local demand is still towards low cost

vehicles, due to low income levels Low quality compared to other developed

countries

Opportunities Growing population in the country Focus from the government in improving

the road infrastructure Rising living standards Rising rural demand The car is a status symbol

Threats Less skilled labor Lack of technologies for Indian companies Imports of two wheelers from the Chinese

market in India Increased congestion in the urban areas Increase in the import tariff and

technology cost

Growth Drivers of the Indian Automotive Industry

SWO

T

The Indian automotive industry is expected to grow with a fast pace. By 2016, the government istargeting an annual turnover of USD 145 billion, representing 10% of GDP and employing a total of 25million employees. The following factors are expected to contribute to this high growth: Higher GDP Growth India's huge geographic spread Increasing road Development Increasing disposable Income with the service sector Cheaper and easier finance Schemes Replacement of aging four wheelers Graduating from two wheelers to four wheelers Increasing dispensable income of rural agricultural sector Growing Concept of Second Vehicle in Urban Areas

Source: DIBD OMII report on Indian Automotive Industry


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Indian Auto Service IndustryCurrent Scenario

2 2 110

52

51

11

7

Two wheeler Passenger cars Commercial Vehicles

Unorganised Service Centers

Authorised Service Centers

Dealerships

Number of auto service centers in 2010 (thousands)

202073,

26%

460503,

58%

125194,16%

Two wheeler

Passenger cars

Commercial

Vehicles

Manpower Deployment in Auto Service Sector(787,770 in 2010)

The Auto Sector in India has grown in the past decade and will continue in its growth trajectory for the nextdecade. India is an increasingly favourite destination for Global Majors looking at emerging markets. This inturn,has fueled a boom in the domestic auto market, with close to 17 million vehicles sold in India in 2011-2012. Thishas consequently affected the Auto retail sector with new entrants in the market expanding their sales andservice network.

Established players such as Hero Moto Corp, Bajaj Auto (two wheelers) and Maruti Suzuki (passenger vehicles)already have vast sales and service network whereas new entrants (in the past decade) such as HondaMotorcycles and Scooter India Limited, Volkswagen, Nissan, Renault etc. are expanding their network with a veryfast pace.

Key Takeaway The above graph shows that in 2010, unorganized service centers contributed almost 75% of the total service

centers. Service centers for two wheelers were almost 70% of the total service centers. This is primarily due to high share

of two wheelers in the Indian automotive market Almost 58% of the total manpower deployment was in the passenger vehicle service centers primarily because of

higher number of service manpower per service center.

Source: KPMG estimates


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Indian Auto Service IndustryFuture trends

Estimated Manpower Requirement in AutoServices Sector (2010 and 2015)

268,448 267,037 252,285

457,367 432,827 415,635

Dealerships Authorised ServiceCenters

Non-OEM/UnorganisedService centers

2010 2015

Future trends in the Indian auto service sector

1) Globalization Globalization of the Auto Sector will increase the skill levels of the service sector. Global OEMsentering India directly or through joint ventures have all created detailed training programs for all their servicecenters (own and authorized) to ensure consistent service delivery to their customers.

2) Emergence of Non-OEM Service Centers - Unorganized sector consisting of individual garages or a chain ofgarages form a significant portion of the auto service market. Given the overall increase in the quality of serviceprovided by OEM service centers and authorized service centers, few unorganized players would be able to rise tothe market and customer demands. This will give rise to a new segment called Non-OEM service centers cateringto multiple brands of cars. My TVS and Carnation are two large players who have entered this segment

3) Multi-brand service centers in rural areas - Demand for passenger vehicles in tier II/ III towns and ruralareas will continue in the coming years. These markets may not have volumes to justify authorized service centersby OEMs, but they would have volumes to accommodate Non-OEM multi brand service centers.

4) Increasing demand for specialized skills - Technology currently used in vehicles is of internationalstandards and uses the latest components that are electronic in nature such as micro processors and sensoryequipment. Service for these vehicles requires different and specialized skills that would be high in demand andwould not be ordinarily available from graduates from ITIs and Polytechnics. These skills are currently being

addressed by private training institutes or OEM training programs

Key Takeaway The manpower requirement is

estimated to be increased by 65%from 2010 to 2015 with maximumdemand of manpower fromdealerships.

Manpower requirement for PassengerCars is expected to grow by over 70%from 2010 to 2015. This is a segmentthat is also expected to witness thehighest level of skill enhancement withthe emergence of the non-OEM sector.

Source: KPMG estimates


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Indian auto service industry - Challenges faced

Profitability

Profitability is one of the biggestchallenge for the automotive dealers inIndia due to the following factors: Increased competition is expected due

to multi-brand chains in the future Rising costs Huge capital investment in activities

such as manpower training, customerretention programs etc.

Reducing margins in products andservices

Increasing consumer demands

Productivity

Productivity is a key issue with mostof the automotive service centers inIndia primarily due to: Manpower attrition Poor implementation of the standard

procedures Lack of trained (process oriented)

manpower Poor management by the service

managers Low motivation levels of manpower

Processes

To ensure smooth flow of processesin the workshop there should bestandard operating procedures forevery process. These procedures arethe backbone of an auto servicecenter. Most of the dealers in Indiaface process challenges due to: Lack of standard operating

procedures Poor implementation of standard

operating procedures Manpowers poor understanding of

operating procedures Time constraint (huge difference

between ideal v/s actual time forservice)

Performance

Implementation of standard processesand productivity enhancement can leadto better performance. However tomaintain the performance of theworkshop, reviewing and tracking

performance is also important. Keyfactors which lead to poor performanceof service centers are: Lack of annual and monthly targets Lack of daily schedules to achieve

targets They do not prepare MIS reports for

management reviews Huge gap between plan v/s actual

targetsSource: Primary research; Prashaste and idea7 Sewells


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Key factors contributing to the challenges faced by auto service centers

1) Manpower attrition- Manpower attrition is a major challenge which the auto service industry is facing today.A significant investment is done by the dealer and the OEM to train the manpower. For instance a Hyundai dealer inIndia needs to train a technician for six months at the dealer end and after six months at the Hyundai trainingcenter. If after such an investment the manpower leaves the dealership, it leads to a significant loss to the dealer inmonetary terms and also affects the performance of the service center.

2) Lack of manpower training - Manpower training proves to be fruitful for the dealers as it increasesproductivity, performance and hence profitability. Following are some examples which show the consequences ofuntrained manpower: Service advisor- It has been observed at various dealerships that an untrained service advisor leads to

customer dissatisfaction. For instance - when a customer visits a service center for getting a vehicle serviced, anuntrained or partially trained service advisor can wrongly advice the customer for a particular fault in the vehicle.

Service manager- A service manager is responsible for managing the workshop. There can be variousconsequences of an untrained service manager -o

Poor implementation of standard procedureso Poor space managemento Lack of motivation in techniciansoUnderutilization of special toolso Customer dissatisfaction

3) Lack of owners interest - It has been observed in the Indian auto retail industry that most of the owners ofthe automotive dealerships are only concerned about the revenues and profits from the dealerships. They do notcare about productivity, performance and processes. Lack of their attention and leadership leads to the poorperformance of a dealership

4) Poor Implementation of standard processesStandard operating procedures are very important for aservice center. Dealers do not implement standard operating procedures in their processes which leads to poorperformance and productivity. Some times training programs by the OEMs result in implementation of standardprocedures in different processes but dealerships do not continue following those procedures for a long time.Also, it has been observed in Indian Auto retail industry that dealerships/service centers of Japanese OEMs performbetter in implementation of standard operating procedures as compared to service centers of other OEMs

Source: Primary research


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Key factors contributing to the challenges faced by auto service centers

5) Poor customer relationship management/customer retention- Most of the dealers do not takecustomers feedback after sales or service. Even those dealers who take feedback from customers do not use thefeedback to enhance customer satisfaction. Utilizing the feedback (wherever possible) is as important as gatheringit. This helps in a fruitful relationship with the customersOEMs usually provide some additional benefits to retain the customers such as a discounted year long service

contract but it has been observed that due to low satisfaction of customers, they are reluctant to accept these longterm benefit schemes

6) Manpower Supply- Based on Institutes offering auto/ auto engineering/ auto repair courses, it has beenestimated that about 530,000 people graduate from these institutes every year. This is the number catering to theauto, auto components and auto service sectors. Yet it is significantly lower than the auto service sector manpowerrequirement of over 780,000. This information strengthens the fact that man power retention is highly beneficial forthe better performance of a dealership/service center.

7) Higher expenditure leading to customer dissatisfaction Indian customers (especially middle class) arereluctant to spend huge amounts on the maintenance of their vehicles. In case of a fault/failure in a vehicle, OEMsservice center manpower has a tendency to replace parts rather than repair them (if possible). This leads to hugeexpenses for customers during servicing and makes them approach the unorganized service centers where thetendency is to repair, not replace, leading to lesser expenditure and hence, customer satisfaction.

Source: Primary research


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Opportunities in the Indian auto service industry

Consulting services for the auto service sector in India can be an excellent opportunity as there are few playerssuch as idea7 Sewells and Prashaste (a new entrant) currently present in the market. There is tremendouspotential in this opportunity as the potential client base is huge with more than 22,000 dealers/authorized servicecenters currently present across India. This number is expected to grow significantly in the coming few years as thenew entrants in the Indian automotive market in the last decade are expanding their sales and service network.

Also, World's top auto retailers such as America's AutoNation and UK-based Inchcape are planning to enter Indianautomotive market.

Consulting Services Consulting services to auto dealerships/service centers can be provided to address theirchallenges and growth aspirations. Their existing performance, which will include a complete check of theirprocesses, practices, productivity, focus on consumer satisfaction and service quality, can be evaluated and asolution can be provided depending on the challenges observed. Services can be provided in various areasincluding:

1. Strategy buildingMajority of the auto dealerships/service centers in India do not have a solid business

strategy and they follow targets given by the respective OEMs. Automotive dealers can be helped to re-alignthem to the changing needs of the market. They can be helped to evolve a strategy aligned with a focus onquality, customer satisfaction, high performance and productivity. (Honda is growing so dealer should beprepared) after one yr of dream yuga launch, free service camps etc.

2. Process design and implementationAutomotive dealerships/service centers can be helped to designstandard operating procedures for different processes. Their existing processes can be restructured to alignthem with key business drivers of customer satisfaction, productivity of resources and profitability of operations.Processes can include discounts approval, delivery process for workshop, space management, service booking,

customer feedback and complaint resolution. (After bike is service, test ride is taken and then job card isgiven and bill is made. After service job card ca be given so that after test ride customer becomesfree).

3. Automotive retail data and research Research services (primary research, secondary research andanalysis) can be provided to auto service centers for activities such as competitive intelligence and pricebenchmarking. These services seem to be essential to face the heat of external competition from the servicecenters of other OEMs or the multi retail chains existing in the market.

Source: Primary research; News articles; Prashaste and idea7 Sewells


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7. Manpower retention programs Due to the shortage of skilled manpower in the Indian market and hugeexpenditures on the manpower training, it becomes very important to retain the manpower as longer aspossible. Automotive dealers can be helped to design motivation and retention programs such as incentivestructure, performance appraisal, compensation policies and employee engagement programs, to retain themanpower. For instance - intensive structure should be such that it depends on both the productivity and

delivered quality by the employee.

8. Customer retention programs Retention of customers is a long term benefit for the dealer. Customerretention schemes such as free service camps, optimum festive discounts, long term service plans can help thedealer retain its customers for a long time. Long term service plans can include an year long service contract ata discounted rate which results in to a win-win situation for both dealer and the customer.

9. Productivity enhancement schemesFollowing standard operating procedures and training of manpowercan result in to enhanced productivity. However, there can be other programs/schemes which can help to

improve the productivity of a workshop such as quick service scheme used by Hyundai Motor Company. Thisprogram includes servicing of a vehicle in one hour when two technicians on one bay together work on thevehicle.

Source: Primary research; News articles; Prashaste and idea7 Sewells


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Training programs Training at different levels from technicians to owner of the workshop is necessary forproductivity and performance enhancement. Different training programs for technicians, service advisors, servicemanagers, warranty managers and owners/top managers can be designed to optimize the performance ofdealership/service center.

Training Approach - A successful training also requires a

post training implementation which can ensure thebenefits of the training to the dealers. Hence aconstructive approach is required by the consulting firm toactually benefit its clients.For example one of the leading trainers for automotiveretail industry in India idea7 Sewells has designed a fourstep approach (shown in the diagram) for peopledevelopment in automotive retail business.

Different training programs for service personnel can bedesigned to improve their productivity and customersatisfaction

Service managers and Warranty managersTheycan be provided with trainings in the following areas Process Training (understanding of Standard operating

processes) Team Building (how to motivate technicians) Soft skills training (to deal with customers) Customer acquisition and retention (good will warranty) Manpower retention and productivity (motivation n

recommend for incentive, motivate by pat on the back)

Source: Primary research; Prashaste and idea7 Sewells

Train

MonitorCertify

HandHold

SOPscompliance

idea7 Sewells Development Sustenance Model

Service Advisors Service advisors can be provided trainings in the following areas Customer acquisition and retention (they should be trained to optimize the service expenditure taking care of the

safety aspect) Soft skills training (to interact with customers) Process training (understanding of standard operating processes)


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Technicians Technicians majorly require technical training which is generally provided by the OEMs. They canalso be provided with team building trainings to make them productively work as a team in the service workshop.They can also be trained to optimize the service expenditure with due care of the safety of the vehicle and thepassenger which will result in customer satisfaction.

Owners/Top management Since most of the owners in the Indian auto retail industry are only concernedabout profits and revenues from their dealership, they should be provided trainings to make them understand thatimproving productivity and performance will result in customer satisfaction which leads to increased revenues inthe long term. They can be provided with trainings in areas such as Team Building (how to motivate sales and service managers) Manpower retention and productivity Business planning and management Strategy building

Source: Primary research; Prashaste and idea7 Sewells


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Thank You

prashaste - indian automotive industry - 10 january - copy

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