Maruti Suzuki revamps ops at Nexa outlets to ride out auto slump

India’s largest automaker, Maruti Suzuki India Ltd, is retooling its business operations for the premium Nexa chain of dealerships to tide over the demand slump in the automobile sector, three people directly aware of the development said in an interview, requesting anonymity.

The company has allowed Nexa dealerships across India to change store locations to slash rental costs, which account for 15-20% of total operating costs. Besides, Maruti has brought down its manpower requirement from six to five per vehicle, the first person said. Automakers ask dealers to recruit a certain number of executives per vehicle to efficiently run a showroom.

The Delhi-based manufacturer has decided to replace smaller retail partners with bigger dealers, based on the strategic importance of a location, considering that smaller players were finding it difficult to maintain operations given the debt and high cost of running premium showrooms at a time when sales have been under pressure. Lack of sufficient liquidity due to tighter credit conditions has also been pinching them.

The slowdown in the economy, increased competition and the launch of new products have weighed on sales of vehicles in Nexa showrooms. However, Maruti has informed its dealers that it will introduce one modified and one new product every year. The shift in strategy to lower rental and manpower costs is aimed at sustaining dealers’ business prospects through one of the most challenging phases, and to reap in long-term gains, said the second person.

“They have changed the norms as most of the real estate was booked during a period when sales were robust," the second person added. “Now in the last one year so, dealers have felt the pinch due to the slowdown and credit crunch."

Industry-wise, around 300 dealerships have shut shop in India in the last and current fiscal, according to data released by Federation of Automobile Dealers Associations. Separate numbers were not available for Maruti.

Shashank Srivastava, executive director, Maruti Suzuki, said it won’t be appropriate to consider the changes in rules, as a shift in strategy pertaining to Nexa. “As a part of our network strategy, it has always been our endeavour to remain focused and be close to our customers. As the Indian economy is evolving so is the urban landscape," he said. “Demand hubs are transforming and shifting base. Increasingly, we are witnessing new pockets within cities."

“In such a dynamic and competitive environment, it becomes imperative to continuously monitor and align the retail network in accordance with the shifting customer base," he added. “This explains the opening of new outlets or shifting of some existing touch points to service our customers better. This has been a standard practice in retail space across industries."

Over the past few months, Maruti has been trying to help its dealers get more credit from banks because of the challenging economic conditions. It has signed memorandums of understanding with Federal Bank and Bank of Baroda in the past few months.

On 28 May 2019, Mint had reported that it was setting up small-format and mobile showrooms for its Nexa chain of premium dealerships in smaller towns and cities. “Decisions related to network are taken with a long-term perspective. We are optimistic of the long-term growth story of the Indian automobile industry," Srivastava said.

If Nexa is considered an independent original equipment manufacturer, it would be the third-largest in the Indian passenger car market. “On product road map, as a company policy, we don’t give any guidance," Srivastava said. “However, as in the past, we will keep bringing models and upgrades to enthuse buyers."