Ola, Uber Open New Vistas For Independent Workshops: Carnation Auto
Jagdish Khattar, founder of multi-brand automotive sales and service company Carnation Auto, in an interview with BW Businessworld has talked about how his company has managed to streamline the whole process of after-sales service of cars especially which are done after warranty.
He also discussed about taxi aggregators like Ola and Uber that have disrupted the market and are now widening revenue streams for players like them. Edited Excerpts:
You have been with Maruti Suzuki India for nearly 15 years. At what stage during that stint you thought about becoming an entrepreneur?
If you look at the international markets, the automotive servicing is equally divided into three broad categories i.e. OEM workshops, independent workshops and neighbourhood workshops. However, in India there are only two categories i.e. the first and the third one. About a decade back, many people who wanted to get their vehicles serviced had no other alternative than to walk into OEMs’ authorized workshops during or after the warranty period.
This is something which I realized a year before my tenure with Maruti Suzuki was about to come to an end. Although my contract (with Maruti) was getting extended beyond 2007, I opted out of it because I wanted to get into organised automobile service industry. The intermediate workshops were the missing link in the country and hence I floated Carnation.
How has been the company’s journey during the first decade of its existence? What has been the response to your business model?
We initially started with ‘Company Owned Company Operated’ outlets running at 20 different locations across the country. Thereafter, we went for a course correction and opted for the franchisee route as running our own outlets was commercially not feasible. Moreover, we wanted to roll out our operations countrywide at a faster pace and that was only possible if we go asset light in our business. Now we have over 110 service centres and 40 used car outlets run by our franchisees at various prime locations.
We also got a lot of encouragement from insurance companies because they were losing a lot of money on what they call is the ‘Claim Ratio’. For instance, if the premium charged was Rs 100, the claims were worth Rs 120. This is because the cost of repairs at the manufacturer’s end was very high. When they (insurance companies) heard about our concept, they supported us wholeheartedly as we were giving better options to consumers.
Are all your sales and service outlets running into profits? Do you see any form of threat from online car servicing and sales channels?
Yes. Within a few months of its running, our outlets were into profits. We see online channels more as an opportunity than a threat. We have also tied up with a lot of them for enhanced business opportunities. They play an important role by creating a platform for buyers and sellers. At the end of the day, a buyer would like to have a touch-and-feel experience of the car before making a final purchase. These portals cannot take away the role of brick-and-mortar stores for sales and services.
Has there been any interesting trend that you are witnessing when it comes to servicing cars?
Over the last few months, we have been increasingly catering to taxi aggregators like Ola and Uber, which have disrupted the market big time. They are operating various vehicles (on lease) which ply across the country and getting it all of them serviced at a single OEM-run workshop is an administrative nightmare for them. They have joined hands with companies running service channels like us and need to discuss with only one point for the same.
Another interesting trend that we are seeing is that a nuclear family, consisting of 3-4 members, is now having multiple cars of different brands parked at its garage. So instead of going to three different company owned workshops, they walk into independent service centers run by corporates like us.
When are you planning to ramp up your existing network of service and pre-owned vehicle outlets?
We look forward to have a chain of 600-700 service centers by 2020-21 and 150-200 pre-owned car outlets by then. Many of our franchisees, who were into servicing business, are now planning to diversify into used car business and vice versa. Many of new franchisees are now opting to go for both the verticals at the same time. There is a greater offtake of second hand car sales because we are offering a 6 month/ 1 year warranty which unorganised players don’t provide. Moreover, we have several service centres to back those sales.
How has goods and services tax (GST) impacted the auto servicing and used car sales segments?
With the introduction of GST, there is a compliance among our service network. But in the used car space, it can act as a dampener as the tax rates (on old cars) have been equalized with new cars at 28-29 per cent (including cess). So it will discourage transparent transactions between a consumer and a dealer and will encourage more people-to-people transactions. As a result, the government will lose revenues out of it. Had the rates been reasonable, it would have actually organised the whole process. The value of used car market would be Rs 2 lakh crore if we are selling 4 million units per annum.
What are your views on some of the drastic moves by the government?
Some of the ad hoc decisions by the government like diesel engine ban, etc. is a retrograde step because automobiles contribute only 25 per cent to the environmental pollution. Out of that, the emissions from cars is least, from heavy vehicles is the most, and after that would be two-wheelers. Within cars, you (Supreme Court) only attack diesel. This is not going to make a huge difference. Moreover, all these global automakers are working across the world and have a roadmap in all countries.
Dust levels in the last few years have doubled and there is also a massive upsurge of crop burning which fuels air pollution. Until there is a complete shift towards electric vehicles (by 2030), hybrid vehicles could be encouraged as an intermediary step. There has to be a comprehensive action plan of various stakeholders and various elements which fuel pollution. The government should have a long term roadmap for the auto sector.
So what can the government actually do to cut greenhouse gas emissions?
The road ahead would definitely be the implementation of Cash for Clunkers Scheme. This scheme was formulated when I was the president of SIAM (and was the MD of Maruti Suzuki). However, it is still not implemented. The old vehicles emit 7-8 times more than the current Euro-IV compliant model. If you take one vehicle off the road, you will be able to do away with six Euro-IV vehicles. So which one is better?
