Auto sector headed for servicing boom

India’s passenger car industry recorded a 33 percent increase in sales in April 2010 over April 2009 sales, the first month of the new fiscal which promises to be as good, if not better, than the previous fiscal where sales touched the two- million mark.

However, as more cars ply in Indian cities and on highways, and with Tier 2 cities also contributing substantial numbers even in luxury car sales (a group of Aurangabad-based businessmen reportedly booked a record 115 Mercedes-Benz cars last month), the need for top-notch and reliable service is no longer confined to just the major metros.

Therefore, keen to leverage the increasing opportunities in vehicle service, several new players have entered the car servicing business including Mahindra First Choice Services, a Mumbai-player backed by Mahindra & Mahindra, which has pan-India expansion plans and Carnation Auto, started by the former Maruti Suzuki managing director, Jagdish Khattar. India’s vehicle parc is currently estimated at nine million units. This is expected to nearly double to 17 million by 2014-15 which will give established and upcoming players player a major market. Shiv Kiran, Mahindra First Choice Services' chief operating officer, says: “We are already seeing an explosion in the service business.”

S Muralidharan, vice- president (automotive aftermarket), Bosch Ltd, says, “With technology in the automotive sector changing fast, there is a need for organised vehicle service.” Indeed, the value of the vehicle servicing industry is huge. Currently estimated at Rs 20,000 crore, this could rise to as much as Rs 27,000 crore by 2015, representing a CAGR of 10-12 percent over the next decade. The result of this turbo-charged growth will clearly be demand for better and reliable services.

The growth in vehicle servicing has also translated into business for companies that make garage and repair equipment. Some of the key players in the sector include Manatec, one of India’s largest OEMs in garage equipment, Elgi Equipment and Bosch Ltd. Many have planned several initiatives to extend their reach and brand within the industry. Companies like Elgi Equipment – which acquired a French company in March – are also looking at tapping overseas markets. Manatec recently exhibited its product range at the Dubai Automechanica in the last week of May.

According to people in the industry, authorised car service outlets currently account for 40 percent of aftersales and service business with the unorganised sector making up for the rest. Multi-brand servicing is now an emerging opportunity in the country with just a couple of players in this sector but given the potential there is to be tapped, the future may see several more players enter the field. The challenge, therefore, for those in the business is to maintain one’s marketshare. The challenge, therefore, is devise viable models for auto servicing. This involves challenges on three fronts: obtaining and keeping inventories of spare parts of a wide variety of players, hiring and retaining trained technicians and installing the latest diagnostics.

However, even as the garage and vehicle servicing sector gears up for the boom, it is already grappling with the lack of trained talent. Attrition, is a “key concern for all players in the business,” adds Kiran. While companies are hesitant to provide exact figures for attrition, they say categorically that as the service business expands, tackling this is top priority. In a sector where starting salaries are in the region of Rs 8,000-Rs 10,000, companies in the sector have poached talent from authorised dealerships and other servicing outlets as they look for ways to fill both entry-level and middle level positions.

How companies in the business tackle the manpower issue will determine who is capable of providing consistent reliable service. Kiran of Mahindra First Choice Services says that a public-private partnership can play a key role in helping manage the skills gap. Several OEMs such as Maruti have tied up with the Industrial Technical Institutes, and for the aftersales and servicing business, this may well be a model that can be emulated. Experts aver that the OEMs cannot provide the kind of service capacity that this explosive growth will demand. Creating the required capacity will cost OEMs a few crores of rupees. The costs of setting up a garage and servicing establishment depends on the kind of capacity planned, the equipment it has – it is possible to buy the equipment required in India – and real estate costs. In the major metros, these are exorbitant but even in the smaller cities, accounting for real estate costs is a key issue.

As companies in the business – new players and the authorised service arms of OEMs – look to providing top-quality service, another challenge is creating a service brand. India’s vehicle aftersales and service business is still driven by a few players in the organised sector and a large number of players in the unorganised sector who offer services of varying quality. From a customer point of view, the service provider has a key advantage and a greater ability to demand higher prices for shoddy service.

In the years ahead, the franchise model for vehicle servicing will be, in all likelihood, be the staple of the servicing business with franchise owners providing training and brand support. It also remains to be seen if players in the sector will use the online route to offer competitive rates and services as is the case in some of the world’s developed auto markets. The future belongs to emerging markets in India and China where vehicle sales are going up and where providing top-class service will be the key challenge.