by Anuj Guglani, CEO, World Auto Forum
• The Automotive Industry’s obsession with Wholesale
• Almost like the College Crush who is hard to forget and keeps coming back !
• It’s time to embrace the life partner called Retail!
The year was 2018. The Industry had prepared for the festive season in a similar way, pumping inventory down the dealers’ necks. We all know what happened. The inventory got stuck and had a domino effect, all through the subsequent year. It eventually led to the biggest sales drop in 20 years in 2019.
The reasons cited for low demand back then were : 1. High Insurance Cost 2. High fuel Prices 3. Rise of Shared Mobility Options.
The reasons in 2020 are far more serious and we know it.
In Short, we can’t afford to repeat the mistakes of 2018 in 2020
We need focussed thinking and absorption of consumer sentiment and Industry stakeholders’ feedback
These 5 Basic Questions can be a starting point :
Current Demand : Is it the unaddressed Pent up from Lockdown era or a fresh sustainable one?
Pay Cuts, Job cuts, Poor Industry demand, would buying a vehicle be a priority for the customer or is it a decision which already stands procrastinated?
Would Rural be the demand driver?
Would Hygiene and Physical Distancing drive the demand? Would it be sustainable?
New Vs Used Vehicles : Flat Vs V Curve?
Additionally which vehicle type would have a greater demand?
Would it be just the 2W? As the people relying on state transport buses might not go beyond a two wheeler?
Would it be an entry level Used Vehicle, if the primary buying drivers are Hygiene and physical distancing?
The CV & 3W Segments are worst hit. Buying a CV is not an emotional decision but a purely business one. Several All India CV Owners Associations have time and again shared their preference to buy used CVs this year.
So New Vehicles Market is expected to be challenging in 2020
In this scenario why are we filling the stock yards of the dealers with new vehicles?
Why do we continue to do the Sales forecasting, Production Planning at OEMs, tier1 Suppliers based on Wholesale?
Wholesale based planning is clearly the reason why we ended up in a mess back in 2018.
We can’t afford to mess it up in 2020. There’s much more at stake!
What do filled Dealer Stockyards give us?
Just a false sense of “All is Well”
It is just to put pressure on the dealer to sell. Vehicle sitting at Dealer end. No option but to push the metal. It will eventually sell. Right? I’m afraid no.
We have seen vehicles lying in dealer inventories for months. The dealers paying high interest to banks. The Insurance Cos and Banks are self acclaimed Business partners of any Dealer when you see the money, the former get paid!
What is the Optimum Inventory for a Dealer?
There were days when dealers used to carry 60+ days inventory. Post 2018 there was a correction and it came down to 20 – 25 days. What stops it from being a week’s inventory?
The other logic can be inventory of just those many days, what it takes for the truck to reach from the vehicle factory.
And the ideal scenario being, dealer takes the full payment, factory builds it on request and ships within a week. That’s the freshest possible vehicle straight from the factory. As a customer, I would love to have one!
“Industry 4.0 & AI based Consumer Insights can surely power these Mass Customised Assembly Lines of the Future”
The Return of the College Crush, “Wholesale” !
Pushing the vehicles to dealers is a convenient way to show growth and sales. However it is the most short term strategy. When the dealers stock yards get full, the OEMs stockyards begin to swell too.
The OEMs raise a red flag to the tier1 Suppliers and they in turn ask the tier 2 and subsequent suppliers to halt where the inventories get dumped. Eventually its the weakest / smallest entity who pays the price and gets worst hit!
Time to Embrace the Life Partner,”Retail” and forget the College Crush!
Why can’t the Industry follow Retail based Planning and reporting across the Industry. Right from the Components makers to the OEMs and Dealers?
This would surely enhance the transparency, make business more predictable, salvage the damage, show the correct picture and amortise the slowdown impact across the value chain.
Why should the dealers or the tier 2 or tier 3 suppliers pay the price of the misgivings of Wholesale based planning?
Think about it …especially in Covid era, when everyone is doing the lip service of being there for each other, here’s an opportunity to “Walk the talk”.