How car ownership is set to get cheaper

Customers are no longer willing to pay an arm and a leg to get their vehicles serviced or repaired at dealer outlets
Customers are no longer willing to pay an arm and a leg to get their vehicles serviced or repaired at dealer outlets

Summary

Thanks to tech-driven disruption, the aftermarket field is being levelled. A new law will hasten the change

Chennai: When Siddharth Dudheria dented his three-month-old Maruti Baleno, he was in a fix. The Bengaluru-based product manager, who works at a fintech, says his dealer estimated it would cost more than 10,000 to repair it — the warranty that Maruti offered did not cover body damage. But myTVS, a multi-brand outlet where Dudheria normally services his 10-year-old scooter, offered to fix it for just 3,000. Since he was happy with the way his scooter was serviced, Dudheria gave his car to myTVS.

“They did a good job. They charged less than a third of what the dealer quoted, and they gave the car back to me much faster," he says. And here’s the kicker: “Once my car is out of warranty, I will take the car to them for service and other repairs."

Dudheria’s last statement will alarm dealers, who earn bulk of their income from servicing vehicles. While it is not unusual for vehicle owners to go to a small workshop for the odd tinkering or simple repair job, a wholesale shift for regular servicing will pose a huge threat to dealers’ profitability.

While it did not happen in the past for a variety of reasons, that shift has already begun, thanks to technology-driven disruptions. Customers are no longer willing to pay an arm and a leg to get their vehicles serviced or repaired at dealer outlets. A new law being readied by the government will only hasten the momentum.

A dipstick survey by Mint reveals just how wide the gap is between dealer and non-dealer service charges. A routine service of a Hyundai Creta costs upwards of 6,000 with a dealer, while it is just 3,500 with a non-dealer multi-brand outlet. For a Maruti Swift, it is 4,500 with a dealer and 2,500 outside. This gap is higher when it comes to Volkswagen and Honda and can be as much as 50% or more, says private workshop operators.

The warranty that comes with a new vehicle prevents people from going outside the system to service or repair it during the warranty period, as it becomes void if they do so. Some automotive players even offer extended warranties that go up to five years.

“Warranties and extended warranties are a sign of confidence the manufacturers have in their product. They are also a step to enhance customer satisfaction," explains Gaurav Gupta, deputy managing director, MG Motor India.

While that may indeed be true, a warranty does tie a customer to a dealer. Multi-brand outlets typically get to service a vehicle only after it is past the warranty period. The 75,000 crore Indian aftermarket, thus, was never a level playing field.

“Dealers had the upper hand thanks to the captive consumers that warranties ensured, and the backing of automotive majors, who trained their mechanics and made sure the dealers had the right equipment," says Kaushik Madhavan, vice president and global head of automotive consulting at competitive intelligence and market research platform MarketsandMarkets.

There were attempts in the past to break this stranglehold, but they failed. Carnation Auto, founded by late Maruti Suzuki head Jagdish Khattar to offer multi-brand servicing and trade in used cars, filed for bankruptcy in 2017. In 2020, the Mahindra group exited the multi-brand service business when it sold Mahindra First Choice Services to myTVS. But the era of domination by dealers is probably coming to an end.

“The playing field is getting levelled. Dealers will face tougher competition from multi-brand outlets as regulatory changes open up the market and technology enables them to address pain points such as the lack of transparency, which had kept customers away earlier," says Madhavan.

Right to repair

The biggest disruption will be ‘The Right to Repair’ law that the government is planning to enact in a bid to have components repaired rather than replaced, thereby reducing product obsolescence, e-waste and costs. The law, which will also apply to the automobile sector, will require original equipment manufacturers (OEMs) to provide consumers and multi-brand outlets with equal access to vehicle information, manuals, schematics, diagnostics, tools and spare parts. So, Dudheria, for instance, will not have to wait till his warranty ends to move to a multi-brand outlet to get his vehicle serviced.

“Dealers will no longer have the monopoly they enjoyed so far with new vehicles," says Madhavan. And OEMs will no longer be able to void a warranty if a customer goes outside the dealership network to service a vehicle. This opens up a huge market for the multi-brand outlets. Also, the law will ensure that a vehicle’s service history remains with the customer. Until now, this was another reason customers typically used to go to a dealer even after a warranty expired, as the entire service history of the vehicle was with the OEM. This company servicing history, they hoped, would fetch them a better resale value.

Madhavan, however, warns that there is a flip side. “The right to repair is a double-edged sword. People who do not have competency may end up working on your vehicle (and damaging it). That capability gap will exist for some time," he says. It is this gap that many players are now trying to address through technology and other means.

Aggregator impact

Multi-brand garages struggle to attract customers and scale up. And this has given rise to aggregators such as Pitstop or GoMechanic, who solved that problem by creating a platform that brings in customers. Aggregators use technology to tackle some of the pain points that consumers and multi-brand outlets, including roadside garages, face. Their business model has contributed to organizing the otherwise heavily fragmented sector.

Customers have also avoided multi-brand outlets because of the lack of a comfort level due to the entire operation being opaque. As drivers of demand, aggregators are able to force garages to adopt a standard operating procedure that keeps customers informed at every stage of the service by sending photographs, proper estimates and evidence that original spare parts were being used. The aggregators also train workers at garages.

But many aggregators, mostly startups, are also struggling. For instance, GoBumpr, Carcrew, SpeedForce and MotorWhiz have been acquired by larger players. GoMechanic, an aggregator that also has over 1,000 service centres, saw an ownership change after reports of financial irregularities emerged at the startup. They are facing challenges in scaling up, says Vinutaa. S, vice president and sector head, ICRA, a credit rating agency.

While the business model solves many challenges, it is not financially sustainable on a large scale. Rishabh Karwa, co-founder of GoMechanic, says this is because of the cost of acquiring customers, especially in non-metros. “It costs 1,000 to acquire a customer in tier-2 and tier-3 towns but the income from that customer is only about 600 or so," he says. Aggregators already charge a good commission from garages and any attempt to increase that fee will result in the garages leaving or cheating, he adds.

Thus, says Karwa, while aggregators “have ensured transparency and convenience," the road to profitability is a long one for them.

TVS’s tech thrust

MyTVS, part of the Chennai-based TVS group, has tweaked the model, leveraging its expertise in spare parts supply to overcome this challenge and building a tech platform to tap the aftermarket. The commission from selling spare parts more than compensates for high customer acquisition costs.

“The guys who own the supply chain win in this business," says G Srinivasa Raghavan, managing director, ki Mobility Solutions, which operates the myTVS brand. The company’s 420 digital fulfilment centres deliver any part within four to 24 hours.

To build the technology platform, the company hired top officials, including Raghavan from IT services exporter Tata Consultancy Services. ‘TVS Fit’, an artificial intelligence-enabled multi-brand diagnostic platform, provides health records of as many as 44 car models to garage mechanics. It identifies errors, provides solutions and even trains mechanics through a virtual reality-based digital training module.

The company’s other platform is ‘myTVS Partsmart’. Raghavan calls it ‘the Amazon of parts’. “It is India’s largest digital catalogue for automotive spare parts. Both the customer and the mechanic get a list of various brands of a particular spare part with details such as price, warranty period and delivery details. The third platform is ‘myTVS HIVE’, a cloud-based connected mobility solution. It monitors the health of the vehicle remotely, diagnoses issues and recommends the best parts.

These efforts are paying off. myTVS clocked revenues of 1,500 crore in 2022-23. Its customer retention level is at 60%. “We expect to grow at a compound annual rate of 50% in the next five years and become profitable at the Ebitda (operating) level by March 2024," says Raghavan.

The company has so far delivered 2.5 million servicing jobs and expects to become one of the largest automotive aftermarket platforms in the country in the next 12 to 24 months, with a network of over 3,000 service centres.

Players such as myTVS are also benefiting from a business model change among OEMs. Many players, especially new entrants, are looking at things differently. Ola, Volvo, Citroen and others have started selling their vehicles directly to customers. Instead of setting up a network of dealers for servicing, some have chosen to tie up with multi-brand outlets. “As many as 10 electric vehicle (EV) players are on our platform," says Raghavan.

The quantum of OEM branded spare parts that go into the retail market has also increased substantially. This, in a way, is an acceptance by OEMs that disruptions will democratize vehicle servicing.

Dealers’ Future

Where does all this leave dealers?

“They have to prepare themselves for the new reality," says MarketandMarkets’ Madhavan. They have to deliver better service to gain and retain customers, which includes becoming more competitive in terms of pricing.

The advent of electric vehicles has only accelerated this need to change. With 80% fewer moving parts, servicing income from an EV will be far lower. With a substantial chunk of their revenue coming from servicing, a shift away will leave a dark cloud looming over the viability of dealerships. No wonder, Manish Raj Singhania, president, the Federation of Automobile Dealers Association (FADA), has called for a Dealer Protection Act to protect the interests of dealers.

A dealer, who serves more than 10 automotive brands, chose to vent his feelings to Mint. He wanted OEMs to change the way they perceive dealers and work with them. “For them, dealers are just financiers. We pay upfront and buy the vehicles and they pay their vendors after 30 or 60 days. I guess they make more money from treasury operations," he says, seeking anonymity.

The worst part, he adds, is that they dump the vehicles on dealers to meet monthly or yearly sales targets. “Today, we will make more money just renting out our premises rather than being dealers," he laments.

OEMs are keenly aware of the new reality and are asking their dealers to step up. India’s largest carmaker, Maruti Suzuki, is asking its dealers to become more consumer centric. “We have increased our focus on customer retention, especially in the third and fourth year of ownership. For that, we measure consumer satisfaction at the dealership level every day," says Shashank Srivastava, senior executive officer, marketing and sales, Maruti Suzuki India.

OEMs feel that the higher electronics content in a vehicle will ensure dealers remain relevant. “Mechanical repairs may end up going to the multi-brand outlets, while those involving electronics may stay with the dealers as handling that would require a lot of investment and a highly skilled workforce," says MG Motor’s Gupta.

Some OEM executives have reserved judgment for now. “Brand-agnostic service centres will grow once they establish their capabilities," says Volvo Group India’s president and managing director Kamal Bali.

The shift to EVs is in the early stages but Madhavan feels that it is high time dealers start pivoting. “They should probably look at energy storage as a revenue option now," he says.

Non-dealer service centres will soon have an opportunity like never before. To grab it, they need to invest in the right infrastructure, skill people and deliver value to customers every time. It is not going to be a cakewalk, say the experts and there will be a shakeout in the space. But one thing is certain: customers like Dudheria will be assured of lower servicing bills for their cars and bikes.

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