The Future of Automotive Retail: An Indian Context

Subhabrata Sengupta​ (Managing Director, Avalon Consulting)

Ayush Patodia (Senior Consultant, Avalon Consulting)

Ganesh Shewatkar (Consultant, Avalon Consulting)

New Age disruptions impacting the customer journey

The advent of digital technologies and the wave of electric cars will greatly change the traditional car dealership model. Technological trends (e.g. Industry 4.0, autonomous driving, car sharing, connected cars, electric vehicles, etc.) indicate that a profound change is underway in the automotive sector that will irrevocably change the customer journey map.

Traditional dealer functions and operating models

Buying an automobile is a high-value, high-cost purchase that requires a high level of commitment from the customer. Dealers play a pivotal role in helping customers make decisions.

Dealer models present in India tend to be single OEM with Chinese walls between different OEM dealers. The functions of dealers are mainly sales, service and other related added values ​​(registration, insurance, vehicle financing).

Erosion of the performance promise of car dealerships

Increased internet accessibility and rapidly changing customer lifestyles have a prominent impact on the dealership’s value proposition. The existing value chain will soon be realigned to be more efficient for both extremes of the value chain [OEMs on the upstream end and customers on the downstream end].

Value propositions are eroded at the upstream end: lead generation, displays in malls/public spaces/roadshows, access to customer data (OBD and telematics help OEMs get a real-time, first-hand look)

Value propositions are being eroded at the downstream end: information accessibility, value-added (financing and insurance), pricing, regulatory registrations

Changing business models in automotive retail

Car dealership business models are being challenged by the advent of electric vehicles. Service is impacted by electric vehicles requiring fewer service interventions and by digitization:

  • Less frequency through direct sales by new OEMs (e.g. Ola, Tesla)
  • The average maintenance and service fee is lower, resulting in lower customer spend per service center visit. Rising real estate costs would make city center showrooms economically unviable
  • Key EV components have their own aftermarket network and focus (Bosch, LG, Panasonic, Samsung)

Alternative models are being developed around the world as automotive sales increasingly shift to online channels, particularly in key markets such as China:

  • Shopping centers for luxury cars
  • Car vending machines in Alibaba’s T-Mall
  • Value-added services offered directly by OEMs like Tesla

EV disruption in aftersales processes

Monitoring of critical parameters such as brake pads, belt tension, bearing wear can be done through a mix of sensors and telemetry

Changing Indian landscape

The rise of digital consumption in India is driving changes in consumer search behavior combined with lifestyle improvements. This requires upheavals in retail business models. It is imperative for existing retailers to keep up with changing customer demands in order to stay relevant.

Small retail players are likely to benefit as follows due to customer preferences and easy access to information:

  • Web-based sales inquiries have increased from 3% to 39% in recent years
  • Overall, 6 out of 8 touchpoints in the customer journey with the dealership are now digital

We believe that while the answers provide some direction, the physical touchpoint will still be important and dealerships will play a crucial, albeit reduced, role.

The widespread adoption of electric vehicles will likely lead to one of two possibilities:

  • Consolidation of distribution and aftersales dealers
    • Advent of virtual reality and 3D – the physical inspection of the car will become less important
    • The number of service visits and revenue per visit are reduced, resulting in lower revenue per bay
    • This would require a larger parking lot for a single workshop to entertain, which will lead to dealer consolidation
  • The size of the car dealerships will shrink
    • The OEM will increase dealer parts margins, allowing dealers to break even with fewer bays
    • OEM will increase sales margins, allowing dealerships to offset the impact of lower auto sales

However, other disruptions such as shared mobility and autonomous cars will have limited impact in the short term

  • Shared mobility: Although private car ownership is declining and multi-modal integration is promoting access, high mileage from shared vehicles will justify higher replacement and thus sustain sales
  • Autonomous (self-driving) cars: It will take some time before autonomous cars make a significant impact on the auto industry. Also, insurance companies will hold OEMs, sensors and device manufacturers liable instead of customers.

Evolution of traders

While the traditional retailer model may not perish, the changing business environment will only ensure the survival of those who can adapt. Our analysis shows that in the new era, OEMs need to pass on an additional 10% discount for the dealer to keep the PBT at the same level.

So we finally come to the question of how? How can dealers develop further..

  • From individual OEMs to car malls?
  • To achieve regional multi-OEM service flexibility?
  1. More collaborative approach with OEM using big data and analytics to create omni-channel presence for customers
  2. Improve customer centricity with an interactive website, service-based apps, and home delivery of parts and accessories
  3. Improve the customer experience by integrating retail walls and 3D configurators into existing stores
  4. Minimize inventory and move most of the sales process online, focusing instead on ensuring a high level of customer satisfaction
  5. Take advantage of the used car market, which has not picked up much in India (compared to developed markets like the US).

The authors are Executive Director, Senior Consultant and Consultant at Avalon Consulting.

Disclaimer: The views expressed are personal and do not reflect the official position or policies of Financial Express Online. Reproduction of this content without permission is prohibited).