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BW Businessworld

Stop This Drive

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Many years ago, I found myself eavesdropping on a conversation between two senior automobile company executives in an elevator.

“This is terrible. How will we cope? It will affect our profits,” said one greying executive. “We can’t afford it. The industry will have to fight it,” said the other in a grim tone.

This was 1995. The executives were reacting to a court decision that would force companies to install catalytic convertors in all cars sold in four large metros of the country.

The industry carped a lot about this rule and tried to whip up anger among consumers. They said affordability of cars would be affected by such devices even though it was clear that air pollution would be significantly lower.

Indian auto industry is among the most efficient in the country and has manufactured world class products under trying conditions.

But the auto industry remains myopic and petty on issues of environment, passenger safety and consumer interest.

It has now an established track record of reforming only under duress. Automobile manufacturers have taken most consumer friendly decisions only after being forced to by legislation, government pressue or judicial activism. Even two-wheeler makers were forced to install indicator lamps. They did not install the lamps willingly.

Automobile companies refuse to place air bags in cars today for the same reason that they did not want to equip cars with seat belts. Their reason is that the consumer does not demand it. Companies say, these features will raise the cost of cars.

But this reason is churlish at best. Consumers would also want cheap tyres and cheap headlamps. Would this reason be enough to compromise passenger safety? Every consumer wants a cheaper product, but lowering of cost can’t be done by reducing safety features.

If all cars had airbags, would car sales drop? Not really. Consumers would factor it in and feel safer. Especially at a time when highway accidents in India are increasing, car companies should fit airbags on their own. Instead, they wait until legislation forces them to make it mandatory.

True to their track record, automobile companies are trying their best to block competition in after sales service and sales of spares.

The Competition Commission of India is probing restrictive trade practices of 17 automobile companies. These companies sell spares to consumers through an opaque pricing mechanism only through designated sellers. Consumers can’t buy genuine parts from any other seller since the companies do not provide the parts. This effectively creates an environment where competition does not exist.

To top this, companies spend millions to educate consumers about the perils on buying non-genuine parts. Essentially this scares buyers away from non-designated sellers.

This is pretty much how cartels operate. Independent after sales service providers are not given genuine spares by the manufacturers. Presence of such players would lead to competition for authorised sellers and therefore reduce the profit margin on sales of spares.

The Society of Indian Automobile Manufacturers (SIAM) is very shrill in protecting its members from lower import duty and higher excise duty. But it is stunningly silent about attempts by industry to kill competition in after sales service.

Most companies operate with a monopoly mindset despite their claims that the industry is very competitive. Once a car is sold to consumers, companies virtually abandon them. At the time of purchase, buyers are wooed with garlands and trinkets (quite literally). But after the sale is done, it is the turn of the consumer to chase dealers and service stations for basic attention.

In the last two decades, I have owned vehicles made by three of the largest car makers in the country. But despite the increased competition in the industry, I still have to plead with dealers of each company to get my vehicle serviced. The other option is to go the unorganised sector where I never know what is being done to my car.

Car company representatives blame the authorised dealer and express helplessness at poor servicing standards.  But in a classic case of duplicity, the same car companies vociferously protect these non-performing dealers from increased  competition. The reason: fat margins on spares and service that is shared by the dealer with the car company.

Hopefully, the Competition Commission of India will break this stranglehold and force companies to officially support independent service chains.

This myopia from an industry that has been visionary is baffling. Short term profits seem to be overshadowing long term benefits. Cheaper service will only encourage more consumers to invest in vehicles. The volumes game will become even bigger.

Earning the consumer’s faith is important. And it can’t be done by slick ad campaigns alone. There have been many instances of new cars catching fire and hurting passengers. SIAM has been strangely silent on this issue. A frank dialogue on this would work better than burying the issue.

There is another pending issue where the industry has not moved fast enough. Recycling of cars is mandated to be managed by the industry in most developed markets. It is currently not mandated in India though SIAM has taken nascent steps by working with the government to set up a recycling unit for cars that are no longer usable.

Auto companies will have to move rapidly to invest in such facilities before legislation forces them to do it. Recycling is a win-win situation since up to 90 per cent of a car can be recycled and monetised. This will free up road space occupied by old cars and help reduce the impact on environment.

The auto industry has much to cleaning up to do. The gleaming exteriors of new vehicles can’t hide the dark practices of the industry.

Ignoring the interests of consumers and environment is like driving with the hand-brake on.

(Pranjal Sharma is a senior business writer. He can be contacted at [email protected])