India’s Auto Slowdown Is Making The Dealer Network Leaner, Nimbler

Tucked between a KFC and a Dunkin’ Donuts store in a bustling mall, a Hyundai Venue and a Grand i10 Nios, the brand’s most recent launches, sit on the showroom floor. Instead of a dozen cars usually displayed in a dealership, this one has touchscreens: prospective buyers can check specifications of the automaker’s complete range, and customise vehicles with their choice of colour and accessories.

Sanjeev Sidodia, the owner, has come to realise that his dealership would do fine with just a few cars. “Smaller showrooms are the way to go as walk-in inquiries have reduced significantly and the customer today is more informed,” Sidodia, who also has a 10,000-square-feet showroom in Delhi, said. But he intends to stick to the digital format for expansion. “With smaller ones (showrooms), you can control space and manpower costs.

According to a dealers’ lobby, there are at least 15,000 automobile dealers in India with 25,000 showrooms employing nearly 2.5 million people. As Indian consumers cut back spending in an economic slump, auto sales tumbled. Many dealerships shuttered outlets as profits fell and margins narrowed, forcing them to consider nimbler and leaner ways of running operations.

A new generation of buyers is scouting showrooms only to select their car, according to Vinkesh Gulati, vice president at Federation of Automobile Dealers Association. “85 percent of customers know what they are buying,” he told BloombergQuint over the phone. “They only look at versions of the model or are, at best, confused over specifications or colours. They enter the showroom to get the best deal possible.”

All it takes is a few clicks on the internet to compare cars and offers, according to Gulati. “The time spent on product detailing has moved online,” he said, adding that a big setup no longer woos customers. They can now get test drives and even cars delivered at home, so there’s no real need for such a huge investment, he said.

New entrants like MG Motor India Pvt. Ltd. have launched with a leaner setup. The British brand, now owned by Chinese automaker SAIC Motor Corp., opened its first digital showroom in Bengaluru in October, seven months after its India foray. No cars are on display and the outlet uses large interactive screens, and virtual reality apps to display vehicles.

A typical full-fledged car dealership—upwards of 3,000 square feet in area—is expensive. For a 3S dealership—that includes sales, service and spare parts—the investment varies from Rs 3-6 crore depending upon the market and size of dealership. At least for Volkswagen India Pvt. Ltd.

To expand while keeping costs low, Volkswagen India is reducing the number of full-fledged showrooms and setting up more “pop stores”—half the size of a full-fledged outlet with a cost of Rs 15-50 lakh. The company intends to reduce the number of its larger showrooms from 100 to 95 and increase its pop-store headcount from 120 to 150.

“The intention is to reduce the cost base for our partners because we see margins (are under) pressure and rental costs are high in big cities,” Steffen Knapp, head of Volkswagen Passenger Cars India, told BloombergQuint over the phone. “We need to be close to the customer and, at the same time, make the network a viable solution.”

Hyundai Motor India Pvt. Ltd., India’s second-largest carmaker by market share, said digital dealerships is an emerging trend in bigger towns. And it has already set up nine such stores in India.

Amin Rehman, who runs dealerships of Honda Cars India Pvt. Ltd., Hyundai India, Ford India Pvt. Ltd. and Renault India Pvt. Ltd. in Delhi, said he is in talks with carmakers to focus on smaller stores. “What we need now is an e-showroom of around 1,000 sq. ft, cutting costs by nearly 40-50 percent.”

Premium motorcycle maker Royal Enfield, too, has introduced “studio stores” of 500 sq. ft, costing about Rs 5-7 lakh each, a dealer of the company told BloombergQuint on the condition of anonymity.

The move is to go deeper into the market with a focus on Tier-II and III cities and expand network in a more cost-efficient way, Royal Enfield said in a statement. The company said over 90 percent of its 500-odd studio stores turn profitable within the first two months of operation.

Other manufacturers are taking the hint.

Mahindra and Mahindra Ltd. is using augmented reality apps. A dealer for the automobile and tractor maker told BloombergQuint on the condition of anonymity that the company has installed VR headsets and large screens at its showrooms. Based on the feedback, a decision on reducing showroom size will be made, the dealer said.

Yet, the traditional dealership model won’t die.

RC Bhargava, chairman of Maruti Suzuki India Ltd., said the studio setup could work well in smaller markets, where the number of cars on display is one or two. “We have already created NEXA to give them a new experience while buying a car, but we’re not at a stage where technology can take over the entire process of selling a car.”

But Abhishek Magkol, a senior sales officer at Hyundai’s digital showroom in Rohini, Delhi, said selling vehicles in a smaller showroom doesn’t pose additional challenges. The outlet sold 12 cars last month and half the customers knew what they wanted but were only confused over colour and variant, he said. “The customer is smart today.”

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