Early this year, the Competition Commission of India (CCI) served notice to 17 undisclosed carmakers in India for indulging in anti-competitive practices. The charge is that these carmakers are tightly controlling sales of spare parts to their authorised service networks which, in turn, charge high prices to the end consumers.
If the CCI’s ruling holds, these carmakers will be forced to supply parts in the open market and may have to limit sales to their own dealerships.
If and when that happens, would the authorised networks in the Indian automotive industry be ready to embrace a deregulated aftermarket industry akin to mature markets such as the US, Europe and Thailand?
Can the two networks survive alongside each other — profitably? How is consumer behaviour likely to change once a reasonable aftermarket option is available to them? These are some of the key questions facing the industry today.
authorised centres
Based on our analyses, we find several key trends that may provide some answers to these questions.
For the last several years, the propensity of customers to service their car during the warranty period at non-authorised networks has declined significantly to just 2 per cent in 2012 from 16 per cent in 2005. In addition, there is a steep reduction in customers using parts offered by non-authorised networks during in-warranty.
The biggest advantage of the non-authorised network — accessibility — has been diminished from a customer’s perspective due to the proliferation of authorised service centres even in Tier-2, Tier-3 towns. In the last five years, there has been a 50 per cent increase, on average, in the number of authorised outlets, with some automakers more than tripling their network penetration.
In addition, stand-alone service and spares centres have been added, ensuring that automakers are reaching out to customers more effectively. As a result, the proportion of customers who cited “convenient location” for defecting to non-authorised networks has almost halved to 37 per cent in 2012 from 76 per cent in 2005.
The last few years have seen overall improvement in the work quality being administered at authorised workshops. The proportion of customers reporting that their work was done right at their first visit was at an all-time high of 95 per cent in 2012. This has increased loyalty and advocacy to the authorised networks, further alienating non-authorised workshops.
In addition, the current state of India’s non-automaker sponsored aftermarket industry is fraught with counterfeit parts, unskilled labour and modest technology. Clearly, with the CCI ruling, even if genuine spare parts are made freely available in the non-authorised aftermarket network, significant shifts in customer preferences to these workshops will remain a question mark.
Customer focus is key
Given the current scenario, how can aftermarket players in India position themselves for success?
There are four key drivers of a vibrant aftermarket, namely: growth in the primary vehicle market; trade environment; competitive threat from authorised networks; and end-customer behaviour. All are important ingredients but the key focus must be on the end-customer behaviour.
As vehicles age, the owners’ propensity to service them at an aftermarket chain increases. In the US, nearly 43 per cent of customers, in their fifth year of ownership, visit an independent service facility for their service needs.
A similar trend is likely to feature even in India, especially when light vehicle sales are expected to double from 3.6 million in 2013 to 7.8 million units in 2018. The rising service load will stress the current automaker workshop infrastructure and customers may have to look to aftermarket chains for a quick fix.
Also, J.D. Power data shows that customers are more likely to have their cars serviced at non-authorised workshops for simpler services, such as an oil change. Customers are seven times more likely to opt for an oil change when visiting non-authorised workshops than in automaker-sponsored ones. Vehicles are becoming more complex from an engineering perspective, thus increasing the complexity of repairs that require specialised tools and trained technicians. With overarching concerns of safety, environmental pollution and vehicle durability, consumers feel that complicated repair services are best left to the experts, that is, authorised service centres.
A case study supporting the above-mentioned customer propensity is seen in the aftermarket industry in Thailand. There has been a significant growth in non-authorised service chains in the recent past in Thailand.
Focus on providing quick service, supported by suitable value chain of spares, has contributed to a 30 per cent jump in the number of such outlets in less than two years. One of the largest and most successful non-automaker service chains is B-Quik. Its highly advertised core promise lies precisely in quick service, trained technicians and genuine parts.
In short, there is potential for the aftermarket industry to flourish and co-exist with the authorised network.
The sheer geographical spread and increasing ownership numbers in India will drive the requirement for non-automaker sponsored service set-up.
In the near term, potential non-authorised aftermarket entrants must look at establishing a strong brand positioning on quality of service, together with a prudent choice of business model built upon a proposition of speed and cost-effectiveness.
In the longer term, there needs to be a sharp focus on execution, especially in the area of customer experience, accessibility and type of service. This combination of speed, quality, cost and accessibility will lay the foundation for building the customers’ sense of “trust,” and ensure a successful and profitable venture in non-authorised aftermarket in India.
(The author is Executive Director, J.D. Power Asia Pacific, Singapore)