Besides bringing in several challenges, the Covid-19 pandemic has also helped in the emergence of new opportunities to realign the business strategies, which can help the automobile dealerships to revive their businesses in the post-lockdown phase.
The Covid-19 pandemic has brought an unprecedented crisis to every sector of the Indian economy and automobile industry, which plays a key role in the country’s manufacturing sector and employment has been severely impacted due to the pandemic induced issues such as dampened demand, low sales, lockdown, labour crisis, supply chain issue etc. The latest blow of the second wave of pandemic came as the salt in the wound after the last year’s Covid shock and lockdown, which was an additional injury to the sector that was already limping due to the prolonged global economic crisis.
The latest series of lockdowns announced by several state governments across the country have not only slowed down sales of the automakers and impacted production volumes but brought the overall business ecosystem to a standstill. In 2020, when the central government announced a strict country-wide lockdown in an attempt to curb the rise of the Coronavirus cases, more than 300 automobile dealerships were shut down as they were already suffering from the financial crisis, liquidity crunch etc. This not only resulted in a business loss for the automakers but also a huge number of job loss as well.
The auto industry was slowly coming back to its feet after the unlock phase begun across the country in mid-2020. During the last festive season, there was a slight revival in the business of the auto industry, on the back of the factors such as slightly uplifted consumer sentiment, growth in demand, new product launch, increased focus towards personal mobility etc. The revival of business was slow but steady till early 2021 and there was a ray of hope about business revival, as the Covid vaccine came at that point in the market. However, the revival in growth has been lost due to the surge in Covid-19 cases due during the second wave of the pandemic and the increased number of deaths that resulted in the slump of consumer sentiment again.
Besides that, the recent series of job losses and pay cuts across various sectors have resulted in reduced disposable income, which is leading to people not showing interest in big-ticket purchases like buying a car. Overall, the business that survived the onslaught last year now is facing a similar or even severe situation, which is likely to be more impactful, as already there is anxiety about the oncoming third wave of the pandemic. However, with the lowering number of positive cases and reduced number of deaths in the last two days, the lockdowns across the country are expected to be loosened and the auto industry is also likely to open back along with other sectors. The market too will reopen, but with a new set of challenges of course.
As the economy will reopen and restart functioning at its usual pace, the auto industry will move ahead for sure but with caution, as a knee-jerk reaction would dent more on their businesses. The lion’s share in expenses for the auto industry is attributed to the manpower, rent for mortar and brick infrastructures and interest costs. While the automakers have been realigning their business strategies since last year to make themselves Covid-shockproof, as much as possible, there might be several new strategies coming to the fore in the next few months in terms of expense realignment, streamlining operations etc.
Here are the strategic moves the auto industry stakeholders might take post-lockdown for better revival.
Mix of large and small dealerships
Older car brands having deeper penetration in Tier-II, Tier-II and smaller cities, towns and rural areas should focus on investing lesser and on lowering operating cost per automobile dealership as compared to the newer car brands. The newer OEMs can focus on having their dealerships mostly in the large cities. Post-lockdown and in the post-lockdown phase, the automakers should focus on making their retail network size leaner to adapt to the changed situation.
The automobile dealerships should take a just-in-time kind of approach with a low inventory level. According to industry experts, with the geographical dispersal of consumer demand, leaner and smaller automobile outlets are going to be important in the phase after lockdown and in the post-Covid world as well. This is just what the rest of the world has adopted. This not only reduces the operational cost but also helps in lowering the investment level, minimising the loss.
Overall, there should be a healthy mix of large and small automobile dealerships across the automakers’ entire retail outlet map. While it’s easy to grab the attention of the consumers of the large cities with bigger outlets, it is sufficient to have smaller outlets in smaller towns and rural areas. Moving forward, the smaller automobile dealerships could eventually be the new norm in the smaller towns and in satellite cities. Already several automakers such as Maruti Suzuki, Toyota Kirloskar Motor are pushing for smaller and leaner automobile dealerships.
Workforce streamlining for better productivity
Productivity for automobile dealerships is often measured in the quotient of how many vehicles have been sold or how many vehicles have been serviced. However, the approach needs to be changed for a better business model. Each revenue-generating department’s productivity should be checked individually. The productivity per employee of the insurance team, finance team, accessories team should be checked. For each revenue-generating departments, there should be a goal per employee and the productivity should be chased accordingly.
The teams in each department can be divided into three different categories, with each team will comprise of 30% of the manpower divided, depending on their skill sets and performance capability. In a majority of the automobile dealerships, the top 30% of the employees contribute over 75% of the total productive output. They need to be retained and set an example for others. The average 30% of workers have to be pushed in a way that they aspire to shift to the top 30%. The remaining 30% at the bottom is dispensable in order to streamline the workforce.
Leveraging digitized operation
Around 90% of the vehicle buying process can be digitized, which not only reduce operational costs for the industry stakeholders but makes the whole process efficient as well. The dealerships being the face of the industry to the consumers can play a key role in the digitization of the vehicle selling process. This will help the dealerships to offer the customers a unique vehicle buying experience, without shelling out a huge amount of operating capital for maintaining the workforce, mortar and brick cost etc.
Optimize the digital technology for customer data mining is another part of the digitization process in automobile dealerships. By using simple online tools a dealership can acquire, retain, and engage consumers. Also, they can attain loyalty and get a referral from the consumers by doing so. This will not only increase productivity by reducing the stress on the workforce but will also give the opportunity to upsell products or upgrade the consumers, with the advantage of no or low acquisition cost.
Focusing on delivering the consumers an omnichannel experience is a key factor that can bring back the business on track and help to grow. In the Covid-era the potential vehicle buyers might reach the dealers through a phone call, webpage query, walk-in or via an event. The dealerships must make sure that the potential buyers get an omnichannel standard experience, so they don’t feel the need to look for the mortar and brick infrastructure. Instead, the whole process should be offering the new-age phygital experience that combines the best of both worlds – physical and digital. Adopting this strategy would help the dealers to reach out to the consumers beyond their compact geographies.
Cut non-productive costs
The economic crisis and later the Covid-19 pandemic has initiated massive cost-cutting in the entire auto industry, just like any other sectors. However, blind cost-cutting often sheds the important elements that can be useful in the long run. In this process, often the companies or dealerships start cutting the marketing costs or customer retention activities as well, which often doesn’t work and impact the business in the long run.
The businesses should instead figure out the non-productive expenses and start cutting those costs. To adopt such a strategy, one can reduce the non-revenue generating workforce, initiate inter-departmental transfers for the employees, get the employees to multitasking, reduce consumable costs etc. Besides these, signing better payment terms with the vendors can become an effective measure to streamline the business.
Value added service brings money
Customer preferences have changed drastically in the last few years. The new generation customers don’t shy away from shelling money for availing of quality products or services. Keeping this change of customer preference in mind, the dealerships should focus on offering value-added service or VAS, which may seem small in value terms, but comes with a significant contribution to the overall financials of a dealership.
The dealerships should focus more on the 3S strategy – sales, spares and service in an attempt to generate revenue. There could be another model as well. As servicing brings the most of the revenue for any automobile dealerships followed by spares and sales, there could be only service outlets as well. However, that’s purely conceptual and no automakers are currently following this strategy.
The automobile dealerships mostly follow the conventional routes to generate revenue, which include push selling of vehicles or pushing service count. But, the value-added services are often neglected by the dealerships, missing out on a key point to add revenue to the financials. Selling accessories, spare parts, upgrade programs, finance, cross-selling can bring in margins up to 15% or so.
Bottomline: Survival of the fittest
The Darwinian evolutionary theory of natural selection of those who are fittest is applicable not only in nature but in businesses as well. The Covid-19 pandemic has brought an unprecedented challenge for sure, but it also brought the opportunity to introduce new methods, streamlining business by shedding the conventional processes that are not so useful nowadays. In such a scenario, the businesses that would be able to streamline their operational process will emerge victorious in the post-Covid era.