AFTERMARKET

“Companies should rise to the occasion and encash opportunities in Indian aftermarket space”

December 16, 2021December 16, 2021 Motorindia Comments(246)

Tête-à-tête with S. Muralidharan, Chairman, Mobility Aftermarket

The Indian automotive industry has grown leaps and bounds over the last decade or so. The country has become a key manufacturing hub for virtually every kind of vehicle. Name any top automotive brand, and they have set up base here. With the burgeoning number of vehicles, the massive business potential for aftermarket support services continues to grow at a rapid pace.

As competition intensifies, aftermarket services have emerged as a key differentiating factor. In the aftermath of the ongoing COVID-19 induced pandemic, there has been a certain churn in the segment. The pandemic has thrown up new challenges, as well as opportunities.

We caught up with S. Muralidharan, Chairman, Mobility Aftermarket, who spoke at length about the emerging challenges and opportunities in the aftermarket space, importance of digitization, midterm to long term potential of the aftermarket segment and regulatory support, among others.

Here are the edited excerpts from the interaction.

Beginning the interaction with an overview of the changing scenario in the Indian automotive aftermarket space post two waves of COVID, Muralidharan states, “The most significant aspect is that the economy is seeing a ‘K’ shaped recovery. Certain portions of the economy are shooting up and certain ones are dropping down significantly.”

“If you are part of the aftermarket services which is on the upswing of the ‘K’ shaped recovery then you are in for a boom, and at the same time if you are part of the down shape of the ‘K’, you are likely to go bust,” he adds.

Key challenges & opportunities

According to Muralidharan, in the current scenario, the consequences and the challenges the different stakeholders have to navigate, tackle and face are significantly different.

“A lot of opportunities have emerged in the last two years. Number one, the market has spread. It is no more districts or Tehsils, today it is pin codes. Due to the lockdowns nobody wants to travel long distances to repair his vehicle. He wants to do it within his pin code,” he explains.

Muralidharan felt that the major factor that his pushing this change is digitization. He pointed out that a lot of changes have taken place in terms of technology. Elaborating on the changes he says: “People have shifted to BS-VI. There is no longer a debate there. There are the older vehicles – BS-I, II, III, IV, and then there are BS-VI ones. So we actually continue to have three generations of vehicles on Indian roads which is a major challenge for the garages and the end users.”

Secondly, he feels that technology in the form of digitization is a reality and that it has changed the entire supply chain upside down. It has made the need, to have parts significantly more important.

Safety is the third key factor according to Muralidharan. “Safety is no longer a mere word. Today safety, i.e., both passenger and health safety has become important. It is true of buses, autos, cars, two-wheelers, for that matter any vehicle,” he says.

Going deeper into the aspect of digitization, Muralidharan perceives that the market thinking has changed beyond accepted norms. Listing out the reasons he mentions: “A person who drives a car, particular the younger generation, a person in the 30s or 40s, ask themselves that if I can get a pizza in the lockdown period by ordering in about 20-30 minutes, why can’t I get my car repaired in 30 minutes? The standard thinking now is that I will send my vehicle in the morning, pick it up in the evening. Reasons such as ‘parts not there, it will come by tomorrow or day after’ are simply not acceptable. He wants them now and more importantly, they expect high quality standards. Also, the whole market has turned towards service assurance, it’s no more seen as extended warranty.”

Muralidharan adds that in this scenario while individual owners are moving up in the ‘K’ shaped recovery, the fleet owners are in a downward slope. Citing the example of tourist fleet operators, he pointed out their business has been very badly impacted due to the pandemic. All these points are some of the major changes in the market.

Doorstep service support

The pandemic situation has given fillip to moving towards doorstep service support he mentions. Explaining why it is so, he says: “Large apartment complexes, i.e., apartments with 500 odd flats, are mini townships by themselves. 500 apartments would have around 300-500 cars. This in turn means that some car or the other is going to breakdown every day. This means doorstep kind of service is the direction to move. It’s like people coming to your home for repairing a refrigerator or an AC. So, one aspect of service is moving doorstep, especially since most of the problems of today’s car is diagnostics. If you go with the diagnostic tools and say that this is the part to be replaced, more often than not, you will simply repair the part and then come back. Therefore, there is a significant change in the whole ball game.”

This leads to the question, what will be the effect of these changes across the value chain? Replying to the question Muralidharan says: ”Garages will gain. As long as they are well equipped with diagnostics and well trained employees, you are game, because you still need servicing, you still need repair. Garages therefore, gain. Whether they have the parts, or whether they have trained personnel is an execution challenge, not a market dynamics challenge.”

Highlighting one more significant change, he states: “There is one major change happening, courtesy digitization. The larger garages order directly from the distributor, especially if the distributor is willing to give a bit of credit. He doesn’t need the retailer. And in these cases the smaller companies are willing to give parts directly to very big garages, or the really big fleet operators.”

“This in turn means that the layers which the Indian market is used to i.e., distributors, dealers, wholesalers, retailers, is crashing. The whole question is what is the value add by all these layers? If the retailer is not able to show clearly what is his value add, to say a garage, the garage doesn’t want to buy from him. At the same time if the distributor does have the advantage because he can carry stock and if he can find ways to reach the garage or the retailer very quickly it is definitely a big advantage for him.”

“The role of a distributor is moving away from sales to more of retail. If the distributor uses an e-commerce site, he is a winner,” he mentions before adding: “The other way is that if the distributor himself has an e-commerce site and strong warehouse competence, he clearly has a huge advantage. Garages see no reason why they should order from a particular somebody. For example in a place like Tumkur (a town in the outskirts of Bengaluru), why should be the place and with a dealer. If there is a guy from the distributor in Bengaluru who comes to Tumkur every day or twice a week, and gives them the part, the only issue then becomes credit. So when a distributor offers limited credit, he is again, a winner,” Muralidharan opines.

Elaborating further on the subject he says: “Credit today has a different meaning. The garages ask the distributors ‘if you can order food online and pay cash, if you can order groceries online by paying a deposit earlier, why can’t you pay me in a reasonable time frame? Has the trend started? I think yes. Has it spread across the country? No. It will take time but the trend has started. Because the distributor then pays virtually for the stock that the retailer-dealer has. If you ask me the garages will boom based on the ‘K’ shaped recovery. The distributors have a strong role to play. In the long term, if they themselves become an e-commerce site, if they themselves become a kind of a C&F agent, the people that are going to be squeezed are the traditional dealers and the retailers. They will still have a role to play but will need to win over customers through rapport, in case there is a garage next door. If they don’t change, they are under incredible threat.”

Local for local

What about the challenges and opportunities for the OEMs and the parts manufacturers. How do things look from their point of view? Replying to the question Muralidharan comments: ”I will divide that into organized and unorganized players and then get into short term midterm, say 0 to 6 months, or 6 months to 3 years duration. The organized vs the unorganized. I think there is differentiation. Whether you can use the word ‘Atmanirbhar’ or not, COVID is going to strengthen the local manufacturers rise up to the occasion. Everybody knows that the international supply chain is under disruption. It will continue to be so. Some part or the other in the world will always say it has this variant or that variant or that we don’t have the capacity. So, ‘local for local’ will be the winner.”

Muralidharan observed that the unorganized players or second tier auto component suppliers, as well as other auto component suppliers, are in a for a boom, if they can rise to the occasion.

“This loosely can be called as part of the ‘Atmanirbhar’ program. But this to me is actually the advantage that COVID brings to the table. Every misfortune has an opportunity. The misfortune of the pandemic breaking down international supply chains, spells opportunities for local manufacturers to move away from the unorganized sector to the organized and start supplying,” he says.

The OEM Angle

Speaking about the challenges and opportunities for OEMs, Muralidharan observes:” They will clearly have an advantage. They have only their internal issues to handle, such as how much to charge for an OE part and how much for the aftermarket. That is what they have to make up their minds. Otherwise with the onset of extended warranty that started quite some time back, definitely the cars, trucks, and buses are going back to the OEMs. So, they will definitely have an advantage. But in terms of sale of parts, the ratio may not change much because the bigger component manufacturers, they have their brands, they have their network, they have their e-commerce sites, they will groom startups, so the ratio of parts sale may not change. OEM garages will have an advantage with diagnostics.“

“The trickier question is how much it could vary, say between trucks and buses. In the case of trucks and buses the OE demand will be fluctuating up and down because of the long distance, short distance factor. For long distance coverage advantage of more kilometers of good highways coming up that will always be an advantage. With respect to short distance, many of the aggregate cab taxis may not work. Remember, people are apprehensive and they will have it for some more time. However, they may come back into the growth track after COVID wanes. The number of owner driven cars and their repairs will definitely go up.”

“You also need to remember here that the number of vehicles per thousand in India is still among the lowest. We are in the top 10 economies list, we are right up there in car production but number of vehicles per thousand is still very low in our country. So clearly the car population will grow in the next five or more years. Therefore, obviously the aftermarket, at least the diagnostics demand will remain high”, he points out.

EVs – Primed for Growth

What about electric vehicles (EVs)? Replying to this Muralidharan feels that their advent will mean there will be a phase where the two-wheeler sales will be very wavy. Explaining further he says: ”Whether the phase is 2 years or less is anyone’s guess. The phase will only stabilize and grow if the EVs start really pumping into the market, and the people know that ‘Okay. EV is also good’. Their demand may vary from place to place. The demand may go up because the fear of charging is really not that significant. For example, in large apartment complexes, they may have exclusive charging stations in their premises. So, small areas will get attracted. The distribution partners also stand to win. The EV manufacturers have asked so many people to personally test drive these vehicles. I have driven one myself. Developed by young, intelligent entrepreneurs, they are good.”

When queried about his take on the two wheeler segment moving completely electric by 2030, Muralidharan observes: “I think it will be significant. The next one year will be crucial for the shift. Because on one hand there is the fear of petrol price, then how good are the new brands? There is also the safety factor. It is not just availability of charging stations. There is no reason why they will not click. Clearly there will be a domino effect in the whole game. And 2030 is not too far away. Are we ready equipped for the network? I am not too sure. But I think things will change. Maybe because of COVID, oil prices, etc. Two-wheelers is where the fun is going to be. Whilst there maybe a lot of hypothesis, finally the it will be the Indian consumer who will be the king. He’s going to choose, he’s going to have a lot of choices. You will have a waiting period for two wheelers, be it aftermarket or otherwise.”

“Now coming to midterm, the aftermarket will grow. I mean the existing vehicles are there, they are not going to go anywhere. So a demand will be there with a clear CAGR of 6% or whatever percent of the economic growth. I am saying if the economy grows at 6-7%, the aftermatket will grow at least at that CAGR.in the next five to ten years. I have a feeling that it will be probably a bit more,” he says.

“Since we are not able to forecast what will happen, how long the pandemic will last, it will be difficult to say the exact percentage. In the mid to long term , the aftermarket demand is not going to go anywhere be it , trucks, buses, cars or two wheelers,” he says.

Adaptation – The key

“As long as manufactures realize that the one thing the pandemic has taught an individual is to change, if we have understood that, be it a new vehicle or aftermarket, that company will be the winner. It can be a tyre manufacturer, brake manufacturer, battery manufacturer, or a full vehicle manufacturer. Because in this human calamity clearly there are opportunities for businesses to grow. I think overall India is moving in that direction. 20% GDP in the first quarter and 8% in the second quarter shows us that there is a recovery. Therefore to say regulatory, this and that, I don’t think is the need of the hour now. Resilience has been proven by Indians and this is the time for Indian entrepreneurs to rise to the occasion and see what else they need to encash the opportunities that already exist,” he says on a parting note.