Ambala, Haryana: Pawan Gupta was in two minds when he set up his dealership for Ford cars on the outskirts of Ambala in January. After all, this small cantonment town in Haryana has just 400,000 residents and there was no telling if there would be enough buyers.
Unlike rivals Maruti Suzuki India Ltd and Hyundai Motor India Ltd, Ford Motor Co. doesn’t sell small cars in India; these account for nearly three of four cars sold in the country.
Nine months later, Gupta’s Pearl Ford dealership has sold more cars than anticipated. It sells between 17 and 20 cars a month, up from the five cars a month Ford sold in the area before the dealership was set up. “I expect to break even in a couple of years,” Gupta says, smiling.
As towns and villages across India become increasingly central to their sales efforts, car firms are beginning to focus on their first point of contact with customers: the dealership. The firms no longer expect customers to travel to cities to buy and service their cars.
Click here for a slideshow of Ford’s state of the art workshop at Ambala
Rising rural sales have made setting up dealerships in small towns viable. Ford Motor India Pvt. Ltd, for instance, plans to add 20 dealers this year to its existing 120-odd in towns such as Ambala, Siliguri in West Bengal, Anantapur in Andhra Pradesh and Varanasi in Uttar Pradesh.
Firms such as Maruti and Hyundai have been venturing into the towns and villages because of increasing demand from these places. At Maruti, the country’s largest car maker, rural sales made up 12% of its total sales of 722,144 in 2008-09, up from 3.5% the year before.
Maruti, which began its push into towns and rural areas much before its rivals, has at least 500 dealers located outside larger cities, out of a total 712 dealers, said a company spokesperson.
For firms such as Ford and Toyota Kirloskar Motor Pvt. Ltd, the local arm of the world’s largest auto maker, their expansion precedes the small cars they plan to launch in India next year.
Ford said on Thursday that it is on track to sell its first small car in India from early 2010.
Toyota, which plans to launch a small car by the end of 2010, aims to add 55 dealers before that, and mostly in the small towns. “If you really want to sell small cars, you have to go into smaller towns,” says Sandeep Singh, deputy managing director for marketing at Toyota.
General Motors India Pvt. Ltd, which sells the Spark small car in India and plans to launch another small car at the 2010 Auto Expo, says it will increase the number of its dealers to 250 from 195 by the end of this fiscal year. “All our (dealer) expansion is taking place only in rural areas,” says P. Balendran, vice-president of corporate affairs at General Motors.
But the strategy has its pitfalls. For one, as more car makers rush to tap rural demand, they could realize that the market is too small to support so many competitors.
Forecasting firm CSM Worldwide Inc. projects a sharp increase in dealerships in India by all manufacturers by 2012. Tata Motors Ltd would add 200 dealers, taking its total number of dealerships to 450, while Honda Siel Cars India Ltd would add 65, taking its total to 165.
Much of this expansion would take place in small towns, says Puneet Gupta, an analyst at CSM.
As a result, sales per outlet may not be enough to support viable businesses. Already, the average number of cars sold by dealers in India is a lot less than the global average. According to CSM, Indian dealers sell 58 cars a month compared with 1,288 for Toyota dealers and 1,165 for Honda dealers globally.
The second likely pitfall: Rural demand may not grow as quickly as anticipated.
Consumer spending from rural India bolstered the country’s economy in the wake of the downturn, after six years of an average 4.4% growth in agriculture, and supported in part by the government’s loan waiver packages for farmers and its National Rural Employment Guarantee Scheme that guarantees 100 days of work in a year to one member of every rural household. The poor monsoon rains, the worst in seven years, may undo some of that.
For now, car makers are taking their small town customers very seriously.
Pearl Ford at Ambala has all the usual spit and polish any city outlet would have. A large display area houses the Ikon and Fiesta models. Prospective customers are left free to wander around and examine the cars and ask for test drives.
“Test driving vehicles is very important for rural customers,” says Nigel Wark, executive director for marketing at Ford India. Wark knows car sales in small towns are based largely on word of mouth and one satisfied customer could yield several more.
Small-town buyers also tend to ask for smaller discounts than their urban counterparts. This, coupled with cheaper realty prices, makes it easier for dealers to break even faster.
When he set up his first dealership in Karnal, Haryana in 2002, it took Gupta three-and-a-half years to break even. His Pearl Ford should take just half as long.
Behind the showroom, a large workshop houses five service bays with technicians trained by the company. With dealers earning at least 60% of their revenue from servicing and repair jobs, Ford has taken extra care to ensure the workshop is up to scratch.
On a recent afternoon, Satvinder Singh had come with a few friends to take a look at the Ford Ikon. “I want a diesel car and I’ve heard from a friend that Ford was a good option,” says the wheat farmer, who owns at least 100 acres of land.
After being taken through the features of the car, he went on a test drive. “I now have my heart set on this car,” he said.