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The impact of the online switch on dealer-OEM relationships

The typical Indian customer likes to know their options before they make the purchase - especially a high value one, visiting multiple showrooms and stores to compare prices and features before they zero in on their final purchase. Seeing a large variety ensures folks get a better deal - and a product more in line with what they want, but also ensures they develop more confidence in their purchase.


But like a lot of other customer behaviours, this may be next in line of the things that COVID could disrupt. In today's post, we try to analyze how this theme will play out using the auto sector as an example.


Where do we stand vs normal


If in pre-COVID June you sold 100 cars, how many cars are you selling in post-COVID June. A major two-wheeler player in their recent conference call stated that they had around ~50% of dealerships open, with ~ 50% of normal sales in the dealerships that had opened. While the first factor is to a large extent outside of the control of us mortals, the second factor can definitely be tweaked, hopefully upward.


One of the major constraints that is keeping the number low is fear amongst people to venture out and visit stores. Auto companies are attempting to tackle this by allowing the customer to make the purchase online. Let's take a quick look at what firms have done to date.


What have firms done?


A car like most factors isn't a purchase you would want to make with a simple click of the button. You would want to know how the car is to drive and test it before your purchase. What auto firms are attempting to do is to digitize all the parts of the transaction that they can - leaving the touch and feel only to the transactions where it is extremely necessary. In a car purchase transaction that is typically a test-drive (to evaluate whether you like the car) and the actual delivery of the car. Even these can happen completely at your door step without you having to physically visit a dealer.


A lot of the Indian Auto manufacturers have already taken a step in this direction launching digital platforms for the customer. Hyundai launched this back in March, followed soon by Maruti and M&M.


The road ahead


While this is certainly great for the auto manufacturer, and great to an extent to the customer, one party that may not get the best out of it is the auto dealer. These are folks who pay a significant chunk to maintain showrooms and staff in their dealerships. In the current system, the customer is linked to the dealer, but as the digital channel gains scale the dealer clout reduces significantly. This could either translate into lower margins for the dealers or at some stage the auto manufacturer trying to cater to this channel directly. Both cases are not very attractive to a party who would already be quite squeezed over the last two years. For Auto firms, this playing out would mean both a better connect with their end customer and potentially higher margins.


It will be interesting to see how the trend plays out, and we shall be tracking it closely and keeping our ZappChai readers informed of the same!


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