Auto dealerships under pressure to adapt as technological advancements challenge profitability

Diversification and innovation. This is what industry leaders say the country's auto dealerships need to focus on, to create revenue in the face of changes brought on by technological breakthroughs which are reducing profit margins. 

At the 5th Auto Retail Conclave, industry leaders asserted that compared to ICE-powered vehicles, service-related revenues for the electric vehicle market are still low. Yet, there is room for growth in terms of making money from auxiliary services related to the EV market, such as financing, insurance, and other ancillary services like car charging. 

One of the primary reasons is that in the case of ICE-powered vehicles, there are more moving parts and hence it requires more maintenance and servicing. ICE doesn't have many moving parts in comparison and thereby requires less servicing which reduces revenue opportunities for dealers. Besides this, the competition has increased,  thus squeezing the margins of dealers. 

Ravneet S. Phokela, CBO, Ather Energy, said, "The dynamics of service revenue may change, but they will be there." He was speaking during a panel discussion on the topic of strengths and opportunities in 2-wheelers and 3-wheelers. Diego Graffi, Chairman, CEO, and Managing Director, Piaggio Vehicles, Ranjivjit Singh, Chief Business Officer, India Business Unit, Hero MotoCorp; Siddarth Bapna, Co-Founder and Director, Blueverse India, and Dharma Teja, Director, Ninestar Motorcycles Bangalore Pvt. Ltd., were the other participants in the discussion moderated by Autocar Professional's Ketan Thakkar. 

According to Phokela, the country's EV industry is already undergoing consolidation, which is similar to what happened with the telecom sector a few years ago. "Now it reflects true market pricing. In the case of EVs, a lot of upgrades are done by software, and they keep going up as opposed to replacement, which happens in the ICE space," he said. 

Phokela further contended that there may be times when a dealership may extrapolate certain revenues for the store. "They may sometimes overestimate or underestimate it. We may not know the steady-state number. However, the only way to get it solved is by having an open dialogue," he explained before continuing that Ather, being a young company, did take some steps that did not go well and had to be corrected. 

Seconding Phokela, Ranjivjit Singh, Chief Business Officer, Hero MotoCorp India, noted that free services and warranties only constitute about 20% of the vehicle's lifetime, and that leaves a lot of room for revenue generation potential. "Service is a core part of the revenue proposition," Singh said.