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-   -   Company Owned & Operated Service Centres / Dealers - Why not? (https://www.team-bhp.com/forum/indian-car-scene/168967-company-owned-operated-service-centres-dealers-why-not.html)

I searched but could not find any related thread so created a new one. Should there be an existing appropriate thread, I request the moderators to be please merge.

One of the most talked about topics, probably on every car forum, would be the experiences at the service centers. An endless discussion on how good or bad the service centers are and the owners experiences, running into pages and pages of multiple threads. And this is just from people on the forums. Even more are discussing it, though by word of mouth and not on any forums.

Many people during their car buying stage, put varying degrees of emphasis on their experience at the showroom. There are stories written on why a car was completely ruled out only because of how they were treated at the showroom. This is fair enough, but only up to a certain point. Because one has to deal with the showroom personnel only up to the point of delivery of the car. From that point on, one is not going to set foot again in the showroom for the same car, nor does one have to deal with the staff there. In short, we bid adieu to showroom.

The Auto manufacturers feel that the showroom is the face of the company and hence there are numerous checks put in place to ensure customers are well handled.

It is the Service Centres and its attitude that one has to cope with, once the car has been delivered. And it is even more relevant these days because a lot many of us opt for the extended warranties going up to 5 years. So one is stuck to the Service centres till the warranty coverage expires. The customer’s experiences in here are what makes or breaks the brand image.
Example? walk into a Skoda showroom or a VW showroom and you will most likely be treated like a king as compared to say a Maruti showroom, but a trip to their service centres can have a vice-versa experience. Not vice-versa experience of exact proportions, but MSIL service experience would fare better. We all know what kind of reputation the Skoda’s/VW now have and what the sales numbers are for the MSIL/Hyundai’s.

Not many Auto manufacturers have fully realized this, but they are slowly getting there. Raise a complain to them about bad your showroom experience was and see how seriously it is taken by them (people seldom spend time on raising a complain though), as compared to your bad experience at the service centre (yeah, we all know how bad an experience it can prove to be). Different manufacturers are at different levels on the A.S.S. satisfaction scale, but I feel no one is “there” yet. We benchmark Maruti & Hyundai and compare the rest to them but they aren't benchmarks. We just use the percentile method for comparison and I would like to say - we start quite low.

So in their process of “slowly getting there” and “emphasis on increased customer satisfaction”, what amazes and confuses me is why hasn’t even a single manufacturer come up with the idea of a Company Owned and Company Operated (COCO) service center? They are in a better position to afford a preferred location, train staff, stock parts and resolve complex situations arising every now and then. In short they can afford a customer centric approach. We have seen COCO showrooms though, but I haven’t heard COCO A.S.S . If there are, then I have not heard of it ever.

Ok. I get it that then the private parties operating their showrooms will suffer in the service centre business and may opt out. But look at the apathy of the Skoda’s, Fiat’s & Nissan’s to quote a few. Dwindling sales + Service centers closing down. They aren’t getting anything from their Private operators. Take the example of Mumbai & the Nissan service centers shutting down and new one’s popping up every now and then. You are not sure where to take your car by the time next service is due. Why should someone buy a car when the service centre is 2-3 hours away, and also when there exists no certainty of the capability of the service centre? Same applies to Fiat’s in Pune (and maybe Mumbai, but this I am not sure). And these are Tier-I & II cities.

Also not everyone will be opting for the COCO service centers. This in turn necessitates the private operators to increase their standards.
Most sales would be generated from Tier-I & II cities and if the Manufacturers decide to have a COCO service centers in the Metros plus the Tier II cities, would it not do wonders for them?

So I put out my question again. Why do we not have any Company Owned & Operated service centers. I am sure the idea must have popped up with the companies. What stops them from doing so?

I believe Tata has. In the guise of Concorde Motors, which are company managed showrooms.
Also some of the Hyundai Motor Plaza's in some cities are managed by the OEM.
Ditto for select Maruti Service Masters service outlets in some cities. Maruti, i don't think has a "company managed" showroom per se.

Common reasoning for OEM's is that they do not want to incur the additional cost of setting up, managing and maintaining a dealership chain. Which is why some may opt for third party owned (where a 3rd party owns the land and buildings) and dealer "managed", that is the dealer provides the manpower, systems and processes.

My opinions:

• Customer satisfaction and opinion is not a top priority for these companies. I'm not being snide here, its just a reality of any profitable business. They have to balance such things against things like liability, risk exposure, flexibility and investment (the last one being a biggie).
• Any business loves to outsource - even if the price is higher, the liability and accountability is lower. If you're in the service industry (IT, BPO, etc.) you'll see just how these companies love to outsource everything apart from their core function to another provider (e.g. cafeteria, transport, housekeeping, security, and in some cases, recruitment, etc.)
• Investment is also a driving factor - it costs a tonne of money to set up just the factory and supplier network, why throw in the cost of hundreds of COCO service centers. Easier to just partner with partners, and diversify that risk. This also means that if a company changes its plans, it can walk away that much easier.

Tesla Motors in the US seem to be the one group trying to operate differently - they're trying to break the stranglehold that dealerships have on car sales (I know, this isn't your question, but mentioning them here), and also have their own service centers (only bodyshop work is outsourced to approved partners).

Two reasons per my understanding:
1) Car manufacturers intend to focus on what they do best - manufacture vehicles. Selling isn't their core competence nor do they want to get into the headache of establishing and management of dealerships+service centres across the length and breadth of country. Hence they shift this responsibility (division of labour in Economics term) to dealers; and
2) Sales doesn't generate (significant) profits for dealerships of mass market cars; it's the service where the significant percent of moolah lies and hence, your point/answer to your question (at least partial) :)

- Increase profitability, yes but not all Indian Auto companies are run in profit. This is a chance for them to attract new customers. Secondly, in a competition environment, every company is looking to go One plus to attract more customers. This gives them that added brownie points over competition. It can be a direct contributor to more sales and profits thereon, needless to say, they will also make profits from the service centers.

- Loves outsourcing, yes but even in IT / BPO , the outsourcing is not of the core function as you pointed out. A goofed up Cafeteria & transport service will not dent their image in the face of customers but a goofed up A.S.S will surely dent Auto brand image. It is wrong to compare with the auto industry as there are penalties laid out in the agreement should there be certain standards not met in the BPO/IT. These penalties keep them motivated to deliver as per standards.

- It may cost a lot of money to set up service centers, but they are already at half way as far as efforts are concerned, by providing training, specifying type of machinery & equipment to be used. I am not sure but in some cases they might even be bearing the cost of a part of the machinery.

- They are best at manufacturing - agreed but they do not rely completely on the showrooms to bring in the sales, since what they manufacture has also to be sold and they are responsible.
- It may make sense for mass market cars, but there examples cited where the private dealerships have failed miserably and dented sales. Plus, even for mass market cars in MSIL's, Hyundais's, Tata's & Mahindras, it is not as if there is only one dealer/A.S.S. per city. So the competition is already there. What is lacking is the OEM service standards. Among so many Dealerships, one COCO workshop isn't going to dent private margins per se. But it can increase standards.

But as much as I can think of from my head, I feel that it should be COCO (Company Owned & Company Operated) just like we have in the case of Fuel Stations. The trust and loyalty is better in case of COCO units as compared to leased/secondary dealers.

AFAIK and as rightly pointed by Arjab, Tata has it under the name of Concorde Motors. Rest all it is not the company owned.

I honestly feel that it should be COCO in the case of service centres BECAUSE, it is better for them to diagnose issues and get down to a solution. Any major problem faced is routed to the higher up/ company official technical team that come down to solve the issue. If the service centres are COCO then this problem is solved and resolutions are faster.

Since it is the manufacturer that is setting up the service centre, the man power will be trained properly and monitored continuously keeping the standards high. Since they manufacture the cars, servicing them should be easier and better.

HMP - Hyundai Motor Plaza is owned and managed by the company, pls correct me if I'm wrong. Also MASS is COCO by MSIL, isn't it?

MSIL has its own COCO service centres in the form of Maruti Service Masters. And by personal experience, I found MSM to be far better compared to dealer operated ASCs.

I heard recently that Hyundai Motor Plaza in New Delhi (on Mathura Road) is closed now.
It was a COCO.

The risk and reward ratio of operating a showroom + service center weighs heavily in the favor of risk, and the rewards are nothing significant in most of the cases. Therefore it makes more sense to let someone else to take a "distributorship" and invest his money in the "franchisee", not the manufacturer himself.

In addition, opening a COCO showroom/service center will annoy the others distributors who will claim (and rightly so) a non level playing field - since most customer's would prefer to buy the product and service from the COCO one compared to theirs.

This is almost like a channel sales strategy where the manufacturer focuses on things he is most competent in: design, manufacture and marketing.
Let the sales and logistics be taken up by smaller companies that can perhaps manage the show better at more cut throat operating level and where the economies of scale do not factor in.

For big manufacturers like maruti/Hyundai the non level playing field applies. But what about Fiat/Nissan etc? They sell less cars and having a COCO owned and operated service center will enable them to provide top service and tackle issues more quickly. Not to mention more stock of spares.

Also, if a manufacturer sells and manages service, I'm sure more people will go there than elsewhere.

Tesla is like the apple of cars. They control all aspects from delivery to service to even software updates! That's one of the reasons of having a high customer satisfaction. They provide pick up and drop, and even provide a loaner if service takes longer than 4 hrs! Now that's service.

I quite agree with the views of alpha 1 on this subject.

Setting up COCO service stations require a huge investment; first the setting up cost and thereafter, the running cost in terms of wages/salaries as also inventory carrying cost.

And to be really effective, there has to be a wide geographical coverage. With most of the automobile companies facing the pressure of intense competition, it does not make economic sense to set up COCO service centers.

In addition, these service stations will divert business away from the franchisees who run the dealerships, since all of us will drive the extra 'mile' to get our car serviced at the COCO center. And no company can afford to alienate the dealers.

As I see it, what is required, is a closer monitoring of the service quality it terms of collecting feedback and acting on the same. I believe Maruti has such a system in place, because when I went to service my Wagon R at Vitesse Prabhadevi Mumbai, the service person would be quite keen to ensure that the feedback was not less than 9 or 10. They appeared to take the feedback seriously.

Tesla doesn't have to worry about volumes.
Once it starts to seek volume, let's see how long it sticks to "do-everything-myself" strategy.

In case of Apple, I am sure Apple doesn't own all the stores where Apple phones and appliances are sold. They operate on franchisee business, which is exactly the same case with car manufacturers and car dealers.

You've hit the nail on the head.
This is what is required to improve customer experience and brand value. Not the COCO approach.

Very interesting thread & some great comments :thumbs up. Throwing my two paisa in:

• Why only car manufacturers? Why should the manufacturer of any big ticket item have dealers? There's a reason for this - Core competence. They can manufacture cars & run factories, but not necessarily handle the retail channel. It's an entirely different ballgame. Equally, I might add, the internet will be a game-changer in this industry too. At some point in the future, I don't see why we won't be placing orders directly on manufacturer websites.

• A wide network of dealerships can also prove to be an unnecessary distraction for senior management which already has its hands full with design, R&D, production, labour, suppliers & raw material, govt policies, new technologies, changing market trends, marketing, advertising etc.

• Local intelligence - Especially so in a vast country like India which has so many languages, religions, cultures etc. It's quite different to sell a car in Mumbai compared to Bihar. Local dealership = local intelligence.

• Dealerships make little money :). About 1/3rd of dealerships are loss making and / or used as a front for laundering black money. Why spent time in a messy business? Leave it to the smaller fish.

• Dealerships cost money. For the cost of 400 dealerships, I could set up another car factory!

• Liability: I'd rather have opportunities to blame the dealer than take the entire liability myself. Manufacturers can also hide behind the dealer's face when they wish to.

• Simpler to sell cars to 200 dealers than 20,000 customers each month. Remember, the manufacturer bills cars as they leave the factory (irrespective of when it's actually sold to its final owner). It is the dealer that carries the burden of inventory costs.

The service center makes more money than the new car outlet. Do you think any dealer will agree to sell cars ONLY and not service them?

And it's already shut down one major outlet - link.

It's easy for Tesla to talk about COCO dealerships because it's been selling one expensive car in an extremely niche market segment. Let them have 15 models selling in 50 countries - then we'll talk.

I will add something termed as Channel Stuffing

Its more than a Norm in almost all industries to Invoice complete production to C& F / Dealers . No matter how much any one plans not all production can be sold against back orders - unless you are having something very niche like Tesla . Now all these sales to Dealer are revenue for a Manufacturer which otherwise would have become Inventory - they can of course support dealer with extra credit or sales schemes . Besides this keep pressure on Dealer / dealer staff to sell more .