Indian Automotive Industry

Consulting Opportunities with a Focus on Indian Auto Service Sector

10 January 2013
Prepared by
Deepak Pahwa
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 of
successful 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 as
foreign 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 Vehicles Two Wheelers Three Wheelers
Source: Society of Indian Automotive Manufacturing (SIAM); Primary research
The Indian Automobile Industry started a new journey since 1991
with delicensing of the sector and subsequent opening up for 100 per
cent FDI. Almost all the global majors have set up their facilities in
India taking the production of vehicles from 2 million in 1991 to more
than 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
Indian Automotive Industry - Overview
30,476
36,612
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 11 11
14
18
20
0
5
10
15
20
25
Passenger
Vehicles
Commercial
Vehicles
Three Wheelers
Two Wheelers
Grand Total
Production Trends (million vehicles)
20
29
47
0
10
20
30
40
50
2011-2012 2015 2020
Passenger
Vehicles
Commercial
Vehicles
Two and Three
Wheelers
Grand Total
Production Forecast (million vehicles)
Trends in the Indian auto industry
The gross turnover of the Indian automotive
industry has increased with a CAGR of 17.75%
from 2006 to 2011. It has continuously shown
an year on year increase during this period
except 2008-09 when it faced a decline in sales
revenue due to the global economic slowdown.

The production of passenger vehicles has shown
maximum growth with a growth rate of almost
138% closely followed by commercial vehicles
with a growth of 133% between 2005 and 2012.

The large population growth of more than 20
million a year and the rising living standards are
two important indicators that logically lead to an
increasing demand for automotives in India.

The Indian automotive market is one of the
most competitive markets with low costs, which
make it an attractive assembly base for foreign
automotive manufacturers
Future Forecast
The Indian automotive industry in expected to
grow (in terms of vehicle production) with a
CAGR of almost 11 percent till 2020.

The economic growth, population expansion and
the increasing wealth of individuals are key
factors behind the forecasted growth of the
sector.
Source: Society of Indian Automotive Manufacturing (SIAM)
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
S
W
O
T

The Indian automotive industry is expected to grow with a fast pace. By 2016, the government is
targeting an annual turnover of USD 145 billion, representing 10% of GDP and employing a total of 25
million 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
Indian Auto Service Industry Current Scenario
2 2 1
10
5
2
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 next
decade. 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. This
has consequently affected the Auto retail sector with new entrants in the market expanding their sales and
service 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 Honda
Motorcycles and Scooter India Limited, Volkswagen, Nissan, Renault etc. are expanding their network with a very
fast 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
Indian Auto Service Industry Future trends
Estimated Manpower Requirement in Auto
Services Sector (2010 and 2015)
268,448 267,037
252,285
457,367
432,827
415,635
Dealerships Authorised Service
Centers
Non-OEM/Unorganised
Service 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 OEMs
entering India directly or through joint ventures have all created detailed training programs for all their service
centers (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 of
garages form a significant portion of the auto service market. Given the overall increase in the quality of service
provided by OEM service centers and authorized service centers, few unorganized players would be able to rise to
the market and customer demands. This will give rise to a new segment called Non-OEM service centers catering
to 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 rural
areas will continue in the coming years. These markets may not have volumes to justify authorized service centers
by 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 international
standards and uses the latest components that are electronic in nature such as micro processors and sensory
equipment. Service for these vehicles requires different and specialized skills that would be high in demand and
would 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 maximum
demand of manpower from
dealerships.

Manpower requirement for Passenger
Cars is expected to grow by over 70%
from 2010 to 2015. This is a segment
that is also expected to witness the
highest level of skill enhancement with
the emergence of the non-OEM sector.
Source: KPMG estimates
Indian auto service industry - Challenges faced



Profitability
Profitability is one of the biggest
challenge for the automotive dealers in
India 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, customer
retention programs etc.
Reducing margins in products and
services
Increasing consumer demands
Productivity
Productivity is a key issue with most
of the automotive service centers in
India 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 processes
in the workshop there should be
standard operating procedures for
every process. These procedures are
the backbone of an auto service
center. Most of the dealers in India
face 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 for
service)
Performance
Implementation of standard processes
and productivity enhancement can lead
to better performance. However to
maintain the performance of the
workshop, reviewing and tracking
performance is also important. Key
factors which lead to poor performance
of 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
targets
Source: Primary research; Prashaste and idea7 Sewells
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 in
India needs to train a technician for six months at the dealer end and after six months at the Hyundai training
center. If after such an investment the manpower leaves the dealership, it leads to a significant loss to the dealer in
monetary 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 increases
productivity, performance and hence profitability. Following are some examples which show the consequences of
untrained 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, an
untrained 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 various
consequences of an untrained service manager -
o Poor implementation of standard procedures
o Poor space management
o Lack of motivation in technicians
o Underutilization of special tools
o Customer dissatisfaction

3) Lack of owners interest - It has been observed in the Indian auto retail industry that most of the owners of
the automotive dealerships are only concerned about the revenues and profits from the dealerships. They do not
care about productivity, performance and processes. Lack of their attention and leadership leads to the poor
performance of a dealership

4) Poor Implementation of standard processes Standard operating procedures are very important for a
service center. Dealers do not implement standard operating procedures in their processes which leads to poor
performance and productivity. Some times training programs by the OEMs result in implementation of standard
procedures 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 perform
better in implementation of standard operating procedures as compared to service centers of other OEMs
Source: Primary research
Key factors contributing to the challenges faced by auto service centers
5) Poor customer relationship management/customer retention - Most of the dealers do not take
customers feedback after sales or service. Even those dealers who take feedback from customers do not use the
feedback to enhance customer satisfaction. Utilizing the feedback (wherever possible) is as important as gathering
it. This helps in a fruitful relationship with the customers
OEMs 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 long
term benefit schemes

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

7) Higher expenditure leading to customer dissatisfaction Indian customers (especially middle class) are
reluctant to spend huge amounts on the maintenance of their vehicles. In case of a fault/failure in a vehicle, OEMs
service center manpower has a tendency to replace parts rather than repair them (if possible). This leads to huge
expenses for customers during servicing and makes them approach the unorganized service centers where the
tendency is to repair, not replace, leading to lesser expenditure and hence, customer satisfaction.
Source: Primary research
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 players
such as idea7 Sewells and Prashaste (a new entrant) currently present in the market. There is tremendous
potential in this opportunity as the potential client base is huge with more than 22,000 dealers/authorized service
centers currently present across India. This number is expected to grow significantly in the coming few years as the
new 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 Indian
automotive market.

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

1. Strategy building Majority 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-align
them to the changing needs of the market. They can be helped to evolve a strategy aligned with a focus on
quality, customer satisfaction, high performance and productivity. (Honda is growing so dealer should be
prepared) after one yr of dream yuga launch, free service camps etc.

2. Process design and implementation Automotive dealerships/service centers can be helped to design
standard operating procedures for different processes. Their existing processes can be restructured to align
them 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 is
given and bill is made. After service job card ca be given so that after test ride customer becomes
free).

3. Automotive retail data and research Research services (primary research, secondary research and
analysis) can be provided to auto service centers for activities such as competitive intelligence and price
benchmarking. These services seem to be essential to face the heat of external competition from the service
centers of other OEMs or the multi retail chains existing in the market.
Source: Primary research; News articles; Prashaste and idea7 Sewells
Opportunities in the Indian auto service industry
7. Manpower retention programs Due to the shortage of skilled manpower in the Indian market and huge
expenditures on the manpower training, it becomes very important to retain the manpower as longer as
possible. Automotive dealers can be helped to design motivation and retention programs such as incentive
structure, performance appraisal, compensation policies and employee engagement programs, to retain the
manpower. 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. Customer
retention schemes such as free service camps, optimum festive discounts, long term service plans can help the
dealer retain its customers for a long time. Long term service plans can include an year long service contract at
a discounted rate which results in to a win-win situation for both dealer and the customer.

9. Productivity enhancement schemes Following standard operating procedures and training of manpower
can 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. This
program includes servicing of a vehicle in one hour when two technicians on one bay together work on the
vehicle.
Source: Primary research; News articles; Prashaste and idea7 Sewells
Opportunities in the Indian auto service industry
Training programs Training at different levels from technicians to owner of the workshop is necessary for
productivity and performance enhancement. Different training programs for technicians, service advisors, service
managers, warranty managers and owners/top managers can be designed to optimize the performance of
dealership/service center.


Training Approach - A successful training also requires a
post training implementation which can ensure the
benefits of the training to the dealers. Hence a
constructive approach is required by the consulting firm to
actually benefit its clients.
For example one of the leading trainers for automotive
retail industry in India idea7 Sewells has designed a four
step approach (shown in the diagram) for people
development in automotive retail business.

Different training programs for service personnel can be
designed to improve their productivity and customer
satisfaction

Service managers and Warranty managers They
can 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
Monitor Certify
Hand
Hold
SOPs
compliance
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)
Opportunities in the Indian auto service industry
Technicians Technicians majorly require technical training which is generally provided by the OEMs. They can
also 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 the
passenger which will result in customer satisfaction.

Owners/Top management Since most of the owners in the Indian auto retail industry are only concerned
about profits and revenues from their dealership, they should be provided trainings to make them understand that
improving productivity and performance will result in customer satisfaction which leads to increased revenues in
the 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
Thank You