Changing gears: Stax offers tips for the automotive industry

By Dushan Kahandagamage and Heshitha Perera

Leading up to 2019, Sri Lanka was experiencing a growing vehicle population with imports hovering around 30,000-40,000 vehicles per year. Post-pandemic, and due to the prevailing import restrictions, new vehicle registrations have plummeted 90% in comparison to 2019. With local vehicle circulation dropping significantly and consumers having no choice but to opt for locally available vehicles, new registrations now amount to one-third of the passenger vehicle market while the second-hand vehicle market (measured through ownership transfers) dominates two-thirds of the game – a mirror image of the market division pre-COVID. 

Sri Lanka’s year-long vehicle import restriction has disrupted the local market with sky-high prices and stagnant vehicle stocks. Consumers have no good options available to them owing to low disposable income, unaffordable vehicle prices, and uncertainty when imports will resume. 

Combining industry acumen and customer insights gathered through recent surveys, Stax offers multiple tips for dealers, agents, and manufacturers on the market opportunities available for investments. 

Optimise to capitalise

Driven by unregistered imports, the local vehicle market was a red ocean before 2020, given that it was an unspecialised industry with low entry barriers and skill requirements. However, with import restrictions in place, individual sellers have left, and the vehicle market today is dominated by 10 to 15% of the large-scale dealers (out of 650+ dealers) with sellable stocks and, therefore, revenue potential. For these dealers, brand building is key to ensuring customer awareness, confidence, loyalty, and retention once the market returns to normal. 

For medium and small-scale dealers, changing the business model and focusing on high-quality second-hand vehicles is the way forward. They too need to create more awareness and build brand recognition via both traditional and digital mediums and position themselves as reliable dealers. 

Customer pampering has become the name of the game for all dealers – creating convenience through value additions is the new modus operandi. With the reduction of banking requirements, documentation procedures, and financial processes, dealers need to capitalise on lower margins, faster turnaround time, and low investment requirements on vehicles.

Add value to customers

Changing market conditions demand changing business models. Dealers and vehicle agents must invest in providing value additions to customers, thus enhancing the customer service aspect of vehicle sales. Giving free inspections for all brand new or second-hand vehicles, offering creative complimentary services, and extended warranties will improve loyalty, referrals, and repeat purchases, which are vital given today’s thinner sales margins. Partnering with inspection companies and financial services providers to offer a holistic solution to customers will help dealers further differentiate themselves from the competition. 

Promote local vehicles

With no foreign vehicles flooding the Sri Lankan market, the Government, together with local vehicle manufacturers, must act fast to invest in the marketing and promoting of locally assembled vehicles: creating customer awareness, confidence, and local brand preference is key. This marketing drive must be coupled with expansion in locally manufactured vehicle portfolios to ensure that customers have choice, accessibility, and options when shopping locally.

Attract smart capital

Bringing in smart capital – investments that attract money plus talent – is a green pasture for local vehicle assembly plants during this period of import restrictions. Policies must be in place to usher in this sort of investment. On the other hand, any party – be it an international manufacturer or local individual – willing and capable to invest in assembly plants or manufacturing operations in Sri Lanka must be encouraged. 

With vehicle prices skyrocketing and automotive supplies stagnant, prospective customers and existing vehicle owners must keep abreast of buying and selling opportunities. Stax offers guidelines on how to navigate this supply-constrained market conditions.

Be informed

Customers looking to buy new vehicles must be well informed. Seeking clean, complete records of vehicles that have a good service history with high-quality service agents is essential for ensuring that you buy a vehicle that is worthy of the price you will be paying. Adopting a wait-and-see approach will also be strategic given the high prices prevailing in the market if an investment is what you seek. 

Prioritise 

The year of manufacture used to be a buyer’s yardstick to assess a vehicle’s age. However, due to the scarcity of vehicles today, the market is being driven by low mileage and sound conditions, irrespective of the year and auction status of vehicles. Customers must opt for a good vehicle with low mileage from among the limited selection available in the country. With the import restrictions curtailing the possibility of bringing down the vehicle of your preference, mileage is overpowering models and features as the deciding factor. 

First-time vehicle buyers are advised to wait until the market resumes normalcy. However, vehicle purchases for upgrading reasons are justified when balancing quality and price. For instance, consumer buying power coupled with all-time high vehicle prices, has created more demand for older European vehicle models because of their perceived quality and luxury among prospective buyers. 

Given that the Government’s ban on importing vehicles can be predicted to continue until the end of 2021 to reboot economic growth and stabilise the rupee, it is necessary to relook at how we buy and sell vehicles to overhaul the local market to be a self-sustainable and value-driving one.