2012 South India Special: Sundaram Motors' top tips on how to run dealerships

Sundaram Motors started its operations on August 13, 1945. It began life as a used car dealership. It then tied up with General Motors and the same plant assembled brands such as Dodge, Plymouth and DeSoto. After GM pulled out of India, it began distributing Fiat cars under the Premier umbrella. In 1959, Sundaram Motors tied up with Ashok Leyland.

“We were one of their earliest dealers for trucks,” says executive director, Sharath Vijayaraghavan. It is an alliance that has stood the test of time. Today, Sundaram Motors’ business has a multi-brand passenger car dealerships for Honda, Volkswagen, Mercedes and Chevrolet.

Excerpts from an interview with Sharath Vijayraghavan.

Give us a brief overview of Sundaram Motors’ business?

As a division of TVS Iyengar & Sons which completes a hundred years, we began life as a used car dealership. We sold GM and Fiat cars and tied up exclusively with Ashok Leyland in CVs and also entered into the aftermarket parts distribution of about 52 lines across the entire aftermarket parts range – pistons, brake fluids, coolants, rings, alternator, starters, headlight, tail-lamps, bearings, grease and lubricants, to mention but a few. For the year ended March 31, 2012, we crossed Rs 1,900 crore in turnover, sold 5,500 cars and around 10,000 trucks. In the parts business, we distribute through a network of 38 outlets, mostly in the south and west – Tamil Nadu, Karnataka, Andhra Pradesh, Goa, Maharashtra and Gujarat. We are one of the largest distributors of auto parts, catering to over 7,500 outlets in the retail network, and growing. We have built the business on a sound foundation of values. It has grown brick by brick because of our values of doing business, our integrity and above all, the investments we have made based on the customers’ preference. We stick to the rules. For example, at our Honda dealership, we sell only what is approved by Honda, including all accessories. Be it the discipline for demo cars, the rules on use of property, we do not deviate. In our passenger car business, we do Honda, Volkswagen, Mercedes and Chevrolet. These rules apply for all brands. Each is run by separate teams and these are, in fact, competing brands. So far, we have maintained levels of integrity acceptable to our principals. That is how we want to run the business.

How has Sundaram Motors grown over the years?

We are a very highly-empowered and disciplined organisation. The business head and brand head of the business is virtually like the managing director of that business. We are here to achieve the objectives of our principals and provide customer delight. Our employees have made this institution. We have employees whose families have worked here for the fourth generation. Many have grown with the company and done well for themselves.

In the initial years, when the economy was regulated, we sold Fiat cars, trucks that were going for high premia and had huge waiting lists. So when the economy opened up, we re-oriented ourselves well to the emerging competitive scene. In 1998, we signed up with Honda. We were one of the first Honda dealerships in India, first in Chennai. It was a huge learning experience. Prior to that, we had exposure to GM since we had been exposed to their ways for a couple of generations.

With Honda, we learnt things on efficiency and productivity. In retailing, it is a journey to improve one’s performance, a continuous evolution. The goalpost for customer satisfaction is shifting continuously. Honda had a key impact on us. We came from an era where the customer had no choice but to buy his car from me. Now, he has many choices. We had to re-orient ourselves. We hired people who had the passion, not necessarily the qualifications. We brought in young talent. At that time, we hired mostly men, but today, women are also being hired. We made changes in mind-sets.

What is unique about the dealership business?

One needs passion. As an analogy, we can use filmmaking. One has to be passionate about it. It is a misconception that service brings in a lot of money.

How has the market changed, then and now?

It was said that one has to be educated, speak good English to buy one a premium car. But this is not true. Today, we sell cars that cost Rs 80 lakh to buyers who do not know English at all. So we have to re-orient ourselves, the customer has to be comfortable with us in the first five minutes, or we have lost him.

In the trucks segment, it was an oligopolistic market with only Ashok Leyland and Tata Motors. We operate truck dealerships in Tamil Nadu, Karnataka, Kerala, Madhya Pradesh and Uttar Pradesh. After more than 50 years in this business, we hold close to 70 percent marketshare in Tamil Nadu. We are like an extended arm when it comes to selling Ashok Leyland trucks.

Now again the scene is changing with MNCs coming in. Volvo, Scania and Daimler are establishing themselves. Isuzu is eyeing India. Today’s truck scene is similar to the car market of 1990s and we will see dramatic changes in the coming decade. India is one of the largest buyers of CVs. Close to 70 percent of the freight is transported over roads and that won’t change as long as the government runs the railways. The government as a business partner must be debated. Unless there’s ownership and accountability in a sustained way, you can’t produce results.

At Sundaram Motors, aiming at synergies, we have, as of April 1, integrated the Ashok Leyland Ltd (ALL) operations of Sundaram Motors and TVS under one head. TV Sundaram Iyengar & Sons has taken over that operation and R Dinesh heads it. Sundaram Motors has handed over ALL dealerships under that head. We have taken the Honda operations of TVS that they used to operate in places like Madurai and Coimbatore. We also handle the TVS’ parts operations which complements Sundaram’s.

Ashok Leyland and M&M want their own dealerships to market their Leyparts and Mahindra parts. Those two verticals are headed by Dinesh. I handle TVS OEs parts and all of the car operations except Renault in Kerala, which is run by TVS as they have a service base there and makes sense logistically. We are re-orienting our business as trucks get more competitive and it’s very competitive in cars too.

What are your priorities going forward?

Our focus is now on passenger cars and we want very clearly to be in the top 10 in every brand in the customer satisfaction index (CSI). We spend a lot of time and resources in training our salesmen and service personnel both in the trade and in discipline. To manage the multiple brands with which we deal with is a task by itself.

We are consolidating our business. We need to be in the top 10 of the CSI of all brands; we are in some, in others we aren’t. We want to do this by 2012. Human resource issues take a lot of my time but I am happy to say we have a lot of people heading top business units now who were once apprentices, something they had never imagined.

We also have a TQM programme going. We are 5S compliant and want to take that further. We have a suggestion scheme that adequately rewards an employee who’s made a worthwhile suggestion. This is a cash award. We have received very good suggestions from how to remove gearboxes or cutting assembly time. Our attrition rates are low.

Are you the best pay masters in the business?

We are not the best paymasters. That is not why people leave an organisation. People leave an organisation because they haven’t been treated well, fairly and not respected for what they bring to the table. I employ men with initiative. Out of 10 initiatives, six will fail. I look at the four that have done well.

What are the challenges of setting up a dealership?

Our philosophy is to invest in the trust of the customers. Today, setting up a dealership costs around Rs 40 crore. The profit you’d make, on an average, is 1.5-2 percent of turnover. To earn, the revenue stream has to be at the peak at every opportunity the principal offers. In a 5-7 year timeline, you’ll set up the business, recover a bit of your money, then comes refurbishment; so one never really gets to take out much money.

The margins are low on car sales, not great on servicing. Now with the real estate and manpower costs so high, and given the way the inflation is having a cost-push effect on the dealerships, the earning power is coming under tremendous fire.

Overall, discipline is very important for running a dealership. Also needed is integrity and my view is that in this country, we need a lot more of it. It’s not like running a dealership in Japan where the integrity levels are high. For me, to get a good employee is like picking up a needle from a haystack.

BRIAN DE SOUZA & KARTHIK H