Focus on resale, new ownership options will revive automobile demand: McKinsey

A three-pronged focus will help automakers revive demand and sustain growth in the domestic vehicle market, points out a McKinsey report.

The growth potential is clear for the industry despite many challenges.

The sector is also benefiting from new tailwinds, such as global supply-chain rebalancing, government incentives to increase exports, and technology disruptions that create white spaces.

Also read: Auto sales stay on fast lane in February; tractor firms post double-digit growth

These developments will help create opportunities at all levels of the automotive value chain.

Repeat customers

While first-time buyers have long dominated the domestic automotive market, the focus is now shifting to repeat customers. With the government coming out with a revamped scrappage policy, the resale market may become more important.

To woo repeat buyers, automakers must develop new strategies to facilitate the resale of existing vehicles across categories, the report said.

Some start-ups have attempted to simplify and improve the process of buying and selling used-cars. If automakers proactively shape the resale landscape, they could help revive urban demand.

Value-seeking customers

The players should also attempt to bring value-seeking customers back into the market. This segment shrunk because the government’s BS-VI emission norms increased prices by about 7-9 per cent for two-wheelers and 3-5 per cent for cars.

“To lower the upfront cost of owning a vehicle, automakers should consider embarking on a new wave of productivity transformation,” it pointed out.

There is also need to innovate by creating alternative ownership options for prospective customers. Simultaneously, automakers can open additional avenues for new customers to enter the market. Some automakers now offer leasing options, especially in the PV segment, but their offerings have narrow limits for vehicle type, lease duration, and other features.

As millennials’ mobility needs evolve and move away from direct ownership, better leasing options will become imperative, the report said.

Also, with digital channels gaining popularity among consuming classes, automakers must develop direct-to-customer options.

Leading companies secure 20-30 per cent more customer enquiries in their sales system by engaging in targeted digital marketing and partnering with digital platforms to generate leads. They are also deploying advanced analytics to create personalised sales pitches in real time, increasing lead conversion by 5-10 per cent.

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