3P Auto Service Segment.pptx

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Industry Analysis on 3P Multi-Brand Auto Service SegmentBy-Iti GargShikha PanwarPriyank KohliSiddharth PanchalBhaskar Maheshwari

Introduction

Indias automotive industry is one of the key drivers of the countrys economy.

At an estimated size of USD 38 billion, it accounts for close to 5 percent of Indias GDP.

Production of a total of 1.69 million vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a growth of 8.18 percent over the same month last year.

The governments Automotive Mission Plan 2016 envisages the industry to grow to a size of USD 145 billion by 2016, so as to contribute 10 percent of GDP.

With increase in the population of vehicles, the need for an efficient service network becomes important.

The new vehicles sold add to the overall vehicle population that needs to be serviced and maintained, as scrapping of vehicles is low.

Rapid improvement in vehicle technology and the number of new models being introduced each year, add to the challenges of providing efficient service.

An effective service network is built on three key pillars: Service infrastructure adequate workshops at the right locations, with proper machinery, tools and other facilities Availability of spare partsAvailability of skilled manpower.Categories of Players in the Auto Service Sector

Owned and franchised dealers Examples: Tata, Honda, Mahindra, etc.

Multi-brand dealers Carz, Carnation Auto, Mahindra First Choice Services and TVS Automobile Solutions (with its brand MyTVS).

Small garages / gas stations.Nearby mechanic.Market Share of the respective categoriesFigure 1

Value ChainSource: ACMA reportThe value chain in India remains highly fragmented and there is a significant level of intermediation required for parts to reach end customers.

The production of parts is split between Original Equipment Manufacturers (OEM) Tata, Honda, etc.

Original Equipment Suppliers (OES)/Tier 1 Bosch

Generic manufacturers.

While OEMs sell through directly-owned or franchised dealers, the independent channel has grown in significance in recent times.

OESs have the advantage of being able to both directly supply OEMs, as well as go through independent distributors.

Revenue Pool for OEMs, OESs and Generic ManufacturersFigure 2The Imperative for effective service

The Indian automotive customer today is well tuned to global markets and products, and expects the same levels of quality in products and services.Retaining customer loyalty is a key concern for manufacturers in India.Providing effective after sales service for vehicles has assumed increased importance for OEMs in India.

What are key factors to retain customers?Source : KPMG Research and AnalysisAutomotive servicing is evolving

Changes in vehicle technologyProliferation of models and variantsNeed to penetrate new markets / geographiesNeed for improved customer service.

Key Drivers for change in automotive servicingKey challenges and success factors for effective service

Source : KPMG Research-Interviews with Industry PlayersSkill gaps in servicing

Recruiting the right manpower (right both in terms of numbers and skill sets)

Providing effective training to ensure the skill sets are always updated and continuously upgraded.

Developing and retaining the manpower.Opportunities In 3P multi-brand auto service segment.

Multi-brand dealers have the opportunities to capitalize Indias ageing car-parc.

Owners migrate to independent service networks for cheaper and faster service.

The lower cost of servicing at 3P multi-brand dealers is influenced by primarily three factors ability to source generic parts at a lower cost than OE sparesability to reach scale in smaller locations through servicing multiple brand vehicles lower overhead cost structure compared to OEMs.

With OEMs more focused on vehicles in their warranty period.

Multi-brand dealers must build a reputation.2. Increasing levels of organized service

Feedback from industry players indicates that most customers do not depend on the authorized service network for vehicles beyond about 7 years of age.

Automotive servicing in India is still largely unorganized.

But due to improved vehicle technology, improvement in service quality and customer service , preference to come back to authorized outlets is increasing.

This provides opportunity for entry of large organized players into the multi-brand, post warranty service business3. Smaller towns and rural markets

Key metros and large cities are getting saturated.

Significant growth potential in smaller towns and rural markets.

Improvements in road infrastructure and inter-city road transport are expected to increase which require increased availability of service outlets along highways.

Threats/Challenges In 3P multi-brand auto service segment

OESs, independent players and distributors considering partnerships and options for forward integrationExample: MyTVS

Number of new modelsService technicians today need to handle an ever increasing range of vehicles.

greater challenge to independent multi-brand players, as the range of products they would need to handle is much larger and across brands.Need for improved customer service

Customers have less tolerance for delays, poor quality service or repeat complaints.

Focused on improving the softer aspects of customer management. Changes in vehicle technology

Improvement in vehicle technology is impacting the way in which vehicles are serviced.

Embedded electronic components and controls that require a higher degree of sophistication for testing and servicing, as well as special diagnostic tools and instruments

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