Unknown to most car owners in the country, a battle is being fought by car manufacturers in India .The debatable point is the so called monopoly of the car industry and Competition Commission of India (CCI) stands as a judge in the matter. It is a multilayered problem with varied effects. Here is how.
Easy availability of the spurious parts is an age old problem that has infected this sector. While the production is pretty organized, a few workarounds are always there. The maintenance of these cars is largely in the hands of an unregulated and highly unorganized industry. In any city of India, big or small, there is always a friendly neighborhood automotive service center that can fix any car at any price.
Any price? Almost. Some mechanics can assemble the car at a cost that will be less than a new car. How do they manage that? Partly through cleverness. Mostly these mechanics are less educated and without any technical degree, but they’re street smart and maybe tech savvy also. There is no way to quantify their skill but these skill are similar to shop floor worker in any car factory and then labour cost is also a major saving.
Secondly there are no overheads, No advertisements, No principals of hygiene to cater to. Most important there is no threat of rebound and lastly due to usage of cheap and spurious spare parts.
Estimates suggest that currently, the proportion of spurious sales amounts to Rs 5,300 crore accounting for 30-35% of the total demand for replacement parts in the country. The replacement market itself is currently valued at Rs 16,500 crore and is poised to grow significantly with the increasing population of vehicles in the country. The impact of this is varied across the Government, customers and manufacturers.
The Government sees a loss of revenue in the form of excise, duties, VAT and other local taxes. This amount is estimated at approximately Rs 4,250 crores.The manufacturers suffer not just from loss of sales and revenue but also brand image as the spurious auto component makers copy the markings of leading brands, to perfection, making it difficult for the customer to make out the difference. And ultimately the customers suffer as these fake parts have a much shorter life causing further damage to the vehicle.
More importantly, spurious parts are often unsafe and unreliable. It can contribute to accidents and to the loss of life or limb. This is however just one side of the story. There is another angle to it which is far more irksome for the domestic industry.
In this highly competitive car market, dealers make more money through after sales and service then by selling a new car. So if we have close look, the dealer is happy to see you walking in his showroom and drive out the car and he is even happier if you visit every 6-8 month to get your car serviced. In just 2 visits the dealer make more money than whatever little he had to give away while trying to sell you the car in form of discounts
The brand earns in the process too. Dealers are mandated to use authorized parts which are priced higher than what they should be. It’s a classic case of branding. A Honda Accord will do as much as BMW 3 series but the customer has to pay more for the latter because of the branding. The companies get a share of this for example Maruti’s branded accessories and spare parts is a constant source of revenue for them. These parts are high on quality and durability.
An unbranded duplicate part costs less and hence finds favour with neighbourhood mechanic whose sole attractiveness is his pricing. But that is not always the only reason. Even if he wants to get a branded original part, it is difficult for him to do so because of vicious circle devised by the industry to keep them out of business. Every time he gains a customer, a dealer loses one and so does the company. If major chunk of car owners start relying on the local mechanics, the sustenance of dealers themselves would be endangered.
It makes sense then for the car companies to not allow component makers to sell parts directly in the open market as that would mean free supplies to these mechanics. And the lack of these parts would mean there would always be demand for duplicate parts.
Should the CCI rule in favour of the car companies, it would mean a legal ratification of this monopoly. It would mean higher cost of service and one that is sure to go up arbitrarily in future. Should they choose to rebuff them instead and rule in favour of allowing parts to be sold in the open market, the sundry mechanics are likely to prosper and car dealerships would have a bigger problem at hand. And the tendency of bargain hunters in India is such, that cheaper duplicate parts would still find a market with these stand-alone garages. So while you can get your car serviced at very competitive rates, you can never really tell if it is safe and secure at all times.
There is no easy answer to this then. Perhaps a mix of both would be required. Encourage the car companies and their dealers but do not allow them to monopolise it. And encourage sale of branded spare parts at least to stand alone organized service stations. A little bit of reform should not harm anybody.