This is why Automotive Companies are struggling!
Over the past 30 years, the automotive industry has faced many crises, illustrating both the cost of lost opportunities and the power of innovation as the archetypical industrial enterprise adapts to a post-industrial knowledge economy.
Maruti Suzuki which holds more than 50% of the market share in India, reported zero sales in March 2020. Also majority of the companies reported severe drop in sales since the world. Though OEM’s are reporting increase in sales in the second quarter, but in reality FADA claims it is not an increase in sales the dealers are loading up their stock with BS6 vehicles.
Companies are taking the lesson learned from the previous recession to tackle this situation, but life doesn’t stop surprising, isn't it?
In this recession, the surprise elements are change in technology and customer’s mindset. It’s high time to realize that the pandemic is not the only cause for this crash. In fact, the automotive industry is undergoing this pain since 2019 itself and the pandemic pushed the curve steeper. Coming to the customer’s mindset, the expectation towards a vehicle is now going beyond commutation but also requires various features in their vehicle. Electric, Hydrogen, Autonomous and connected cars play a major role in driving this change.
On the other hand, OEMs all over the globe taking various measures to develop technology and to reduce the manufacturing cost. For instance, FCA and PSA made 50–50 agreement and came up with a new brand called Stellantis. Likewise, General Motors joined hands with Honda and Nikola for manufacturing feasibility and driving future technology.
But, isn’t it right to think about the fact that, though the world goes off for a day, there are vehicles moving around. The vehicles are moving all over the globe when their manufacturers are in pain.
Why is that so? What is the reason that the revenue of OEM depends only on the sales and there is no connection with the customers after that?
To find answer to these questions, have analyzed the behavior and expectation of the customer while selecting a car. Apart from power, capacity, color and mileage, service and maintenance is one factor that all the customers are looking for. This factor plays a major role in making their choice.
During empathy with customers, the common answer from all is — I need to own a car for a minimum of 10 years down the line, so service and maintenance needs to be easy and affordable. Also, OEM like MG who came into India recently made their customers happy with their affordable low-cost service. This might be one of the reasons why their sales are increasing though they just entered the market.
For further analysis, let’s take TATA Motors since empathy was conducted from Indian customers so conclusions would suit well. A little background of financials of Tata Motors Ltd, company’s chairman N Chandrasekaran reported that they will significantly reduce their group’s automotive debt of ₹48,000 crores over the next three years.
The road to zero debt will not be smooth. Though there are other subsidiary companies with TATA which are cash-rich to support, it’s harder to maintain the positive cash flow for TATA Motors.
So, when I think about the solution on how to being a cash-rich company forever with the analysis from empathy interview from customers, a thought hit my mind that there is a dis-connectivity between customer and OEM once the vehicle is sold.
You can question me how can it be possible? We have live examples like OLA and UBER. They don’t manufacture any automobile still they are generating revenue by using them. (Though OLA is working on to be an OEM, it’s still in progress)
GM tried to enter into Car -Sharing services with Maven, but it didn’t go a long way.
Assume from beginning auto-makers focus on different services they can provide with their product, now no company will be in debt or worse bankrupt. Using this thought and the analysis from empathy, I put forward the below solution that may help auto companies to be cash-rich companies forever.
Take up services and maintenance into the hardcore agenda of Automotive OEMs. I agree that automakers are providing free service until a year or so. But that is not what am talking about.
Assume customer buys Tata Nexon for 7 Lakhs ex-showroom price. If I give the option to customers that, if customers opts for our service insurance which will be 5% of the vehicle’s ex-showroom price which is 35 thousand per year, there will not be any maintenance cost charged for that year. If this is being collected for 14 consecutive years, below will be the final result with a CAGR of 10%.
Now coming to the service, any vehicle will run smoothly for a year or two without the need of changing any major components. Since service is covered, customers will be happy to leave the car for service on time without delay. This can improve the durability of the components since they are maintained then and there. Also, Customers will have no reason to service in any shops other than authorized dealers, and also duplicate spares can be eliminated. This will give a whole new experience to the customer as they drive their vehicle like new always.
In this way, we can eliminate the criteria of service and maintenance for customers while buying any vehicle.
Happy Diwali!