Hyundai’s Car Dealer network strategy

Recent research by Synovate shows that when markets turn bad, as they did in the country till a few months back, buyers prefer to go for brands that have a wider presence. It reassures them that the company will not go out of business. And for that a large dealer network for sales as well as repairs and service is essential. At present, Hyundai has 272 dealers across 190 cities and towns. The company plans to raise the network to 300 across 230 cities and towns by the end of the year, though 295 would be a more reasonable number.
Segments must be identifiable so that the marketer can determine which consumers belong to a segment and which do not. However, there may be a problem with the segment’s measurability (that is, the amount of information available on specific buyer characteristics) because numerous variables (e.g. psychological factors) are difficult, if not impossible, to measure at the present time. For example, if the marketer discovered that consumers who perspire profusely favored a particular brand, very little could be done with this information since such a group would be difficult to measure and identify for segmentation purposes.
This more or less covers the entire country. Dealers are clearly an important cog in the Hyundai game plan. The key therefore is to boost the profitability of the dealers. All sales of spare parts are channeled through their dealers. Even the 700-odd authorised service stations have no option but to buy components from dealers. The logic is simple: While the profit margins on car sales are low (the industry average is below eight per cent), those on spares can be as high as 60 per cent. Hyundai has been around for ten years in the country now and there are 1.5 million Santros on the road. The service volume is not negligible.
Meanwhile, the company has also worked with dealers to improve their showrooms and service infrastructure. Hyundai every year rates its dealers collectively on a scale of 1,000. Last year, the score was 800. A target of 950 is set by the Company by the end of 2009. By mid-October, it has hit 905. At least 15 per cent improvement in most of their dealers could be seen. They also plan to convert 100 of them into elite dealers.
A large dealer network may be fine, but for footfalls to convert into purchases, credit is the key. In the last one year, private banks as well as non-bank finance companies, which had fuelled the last boom in car sales, have turned conservative. Earlier, they had financed up to 90 per cent of the cars sold, only around 10 per cent customers bought cash down. The number shot up to 40 per cent in December 2008, thanks to the financial melt down, it has since dropped to 33 per cent.
Unless it falls to 15 per cent to 20 per cent, car sales are unlikely to boom like in 2006 and 2007. Hyundai has thus quietly tied up with about a dozen state-owned banks which have been “gently persuaded” by the government to lend freely. This is a part of its stimulus to revive the fortunes of the economy. These banks lend freely to Hyundai’s customers. In return, Hyundai dealers have given business to these banks. They source, for instance, all their working capital from them. So far, the trick seems to have worked. State-owned banks accounted for about 15 per cent of Hyundai’s sales a year ago; today, they contribute as much as 29 per cent.
It is every chief executive’s job to aim for market leadership. These initiatives he hopes will help bridge the gap with Maruti Suzuki.–