Description
IS plan for Maruti finance department. Goals are Improve car sales through better finance availability in terms of Penetration & Reach, Competitive / Transparent product, Ensure customer ownership resides within MSIL network and Generate additional revenues for the company/dealer.
IS Plan for
Maruti Finance Department, Maruti Suzuki India Limited
Submitted by
Contents
About Maruti Suzuki India Limited Vehicle Finance Industry Evolution Maruti Finance Department Introduction IS Plan for Maruti Finance Department a) Goals b) Strategies Environment Analysis 1. SWOT Analysis 2. Porter’s Five Force Analysis of competitive structure 13 3. Life Cycle Analysis Resources Analysis 4. Value Chain Analysis Typical Loan Process 16 18 19 19 20 20 22 22 23 24 14 15 15 11 12 12 12 3 4 7 11
Strategies of the department c) Information Analysis Critical Success Factors Key Decisions Key Information d) IS Solutions Existing Info System Analysis Gaps Proposed Systems
Maruti Suzuki India Limited
Vision
The leader in Indian Automobile Industry, Creating Customer Delight and Shareholder’s Wealth; A pride of India
Mission
To put India on 4-wheels ( or to motorize India)
Core Values
• • • • • Customer Obsession Fast, Flexible & First Mover Innovation & Creativity Networking & Partnership Openness & Learning
Brief Introduction of Maruti Suzuki India Limited (MSIL)
More than 50% of cars sold in India wear a Maruti Suzuki badge. MSIL is a subsidiary of Suzuki Motor Corporation, Japan. They offer full range of cars- from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. Since inception, they have produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. MSIL’s turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs. 12,187 Million.
Passenger Vehicle Finance : History
Evolution of Passenger Vehicle Financing in India
Late 1980s: Organised financiers entered “Auto Loan” Space • • • • NBFCs were mostly involved in leasing activities In 1987, Citibank was first to offer auto loans through a scheme- Citimobile which was much profitable than leasing. Inspired by Citibank, many NBFCs entered this space Yields in the business were in the range 25-30%
Early 1990s: Auto Finance Market Growth • • • • • New models- Esteem and M1000 were launched by Maruti Udyog Limited. Demand exceeded supply and these Auto Finance companies purchased vehicles and sold them at a premium of 20-30,000 Yields in the business were in the range 30-36% Leading players were the NBFCs- Anagram, Apple Finance, Gujarat Lease Finance NBFCs helped in increasing the acceptability of finance and developing the market
1996 to 1998 : Yields fall as supply increases • • • • NBFCs were the only players in the organized market GM, Ford, Daewoo entered India thereby increasing vehicle supply Auto Finance companies instead of demanding premiums, offered discounts to get rid of the stocks The Yields fell to 18-20% range
•
Total organized market in India was expected at Rs 42 Billion in 1997-98
1998-2003: Entry of Banks • • • • Change in practice from subvention to reverse subvention Kotak introduced the Esteem Bonanza scheme with subventions from MUL. With this, manufacturers discounts to financiers came into existence. Dealers also offered subventions to Financiers to boost sales. However, post 2000, entry of banks intensified competition. The concept of reverse subvention was born when financiers started offering subventions to increase business volumes. In 2002, MUL, entered into tie-up with 8 auto finance companies to finance its cars under Maruti Finance There was a shift in dominance : From NBFCs to Private Banks During 1998-99 and 2002-03 the total organized new car market grew by 23% CAGR to reach Rs. 164 Bn Declining yields forced players to enter into Used car market to increase overall portfolio yields. Yields in Used Car market are generally higher than new car market by 4-5%. In 2002-03, Used car finance market was about Rs. 15Bn
• • • •
2003-06: Intense Competition • • • • • • PSUs enter the market with aggressive plans. SBI launches 2599 scheme with Maruti for their model M800 Union Bank of India partnered with Ford for the Non-metro segment, signaling increased focus on rural sector. New auto finance market grew at 38% to reach Rs. 227 Bn with auto financiers cutting rates and extending tenures. Organised Used car market grew to Rs. 19Bn and became focus area for private banks By the end of 2005-06, banks dominated the Auto Finance space. They captured 65% market share of the total market of 401 Bn Some players made losses on the net margin level
•
Standard Chartered, ABN Amro, Ford Credit and Countrywide Finance exited the market
2007-2008 • • • 2007-08 witnessed an increase in interest rates for car loans. Car Sales are expanding more and more into rural areas HDFC becomes the number one financier overtaking ICICI Bank
2008-2009 : Liquidity crisis for NBFCs • • • • • Due to poor liquidity conditions, NBFCs go slow in vehicle financing ICICI Bank exited 2-wheeler financing and even in car financing it went very slow Auto Manufacturers tied up with many PSU banks for retail funding PSUs rescued the auto sales with many new PSUs capturing the market with aggressive sales. SBI became the number two financier with its volumes very close to the number one HDFC bank
Maruti Finance
Core Functions
Maruti Finance is a consortium of about 23 financiers, that was initiated with following objectives • • • • • • Enhanced Customer Ownership and retention. Increase Car sales through easy availability of organized finance. Dealership as one stop shop. Increased Dealer revenues through Finance activities in the form of payouts (negotiated by the dealer with the financier). Reduce dependence on Direct Sales Agent (DSA) for Car sales. MSIL to act as aggregator instead of DSAs/ Finance Cos.
Car Finance Advantages
? Increases sales through enhanced reach to various customer segments & geographies ? Finance option makes the car more affordable to the customer ? A good finance deal leads to better buying experience and hence increases customer loyalty ? To Enhance dealer Revenues and have greater dealer control on the car finance Market ? To reach out to customers in different segment MSIL has tied up with several financiers based on their strength to provide finance option to more & more customers
Maruti Finance Partners
Reason for its diversified partners
Market is diverse – comprising of rural, semi-urban and urban segments and each financier is strong in different segments in different geographical location.
Also, each bank has a slightly different approval mechanism and processes. Hence, a customer who may get rejected from one bank, may get approval from another bank. Hence, the diversity. Also, each customer has his own preference to transact with a particular bank.
Strengths of different partners PSU Banks
• • • • • Transparency in deals Funding on On-RoadPrice Low Interest Rate Low foreclosure charges Low Processing fee • •
Private Banks
• Dedicated man power at dealerships (retainers) Faster Service Level Low Margin Money • • •
NBFC
Greater coverage in rural areas Less documentation required Not strict on profiling
Benefits of Maruti Finance
CUSTOMERS • • • • • One-stop Shop Availability of Organized Finance Loans at most competitive rates Loan on Accessories, Insurance & Extended Warranty Transparent Deals • • • • DEALERS Direct control of the Finance Market. Reduced dependence on DSA cases Increased Profitability Increased Customer Loyalty
SALES STAFF • • • • Ownership of Customer from Day 1 Better Relationship with Customer Better Relationship with Finance Company More Incentives • • • •
MARUTI Increased Reach of Maruti car Market More Value to customer, more than just Car Improved Ownership Experience for Maruti Customers More Vehicle Sales
Preparing IS Plan for Maruti Finance Department
Goals:
a) Improve car sales through better finance availability in terms of Penetration & Reach b) Competitive / Transparent product c) Ensure customer ownership resides within MSIL network d) Generate additional revenues for the company/dealer
Strategies:
To do the strategic analysis of the business, let us understand the environment and resources. Environmental Analysis 5. SWOT Analysis 6. Porter’s Five Force Analysis of competitive structure 7. Life Cycle Analysis
SWOT Analysis of the Retail Finance Industry
Strength Key driver of vehicle sales Large supply base - Presence of many players - PSU/Private/Foreign banks & NBFCs Aids in managing seasonal sales fluctuations by liasoning with manufacturers for offering discounts Helps in providing wholesale finance to the dealers Works closely with the manufacturers to work out profile/product/area specific finance schemes Aids in market expansion Opportunity Car Market is rapidly growing Net Banking with Dealers & Manufacturer Joint Venture with manufacturer
Weakness Higher delinquency of few private financiers Relationships with dealers in few locations are poor due to poor service. Payout differential causes dealer to be biased towards financiers who give higher payout thereby forcing everyone for higher payout and inturn lower margins and higher interest rates to customers
Threat Failure of a (poorly designed) scheme Poor repossession norms Higher delinquencies
Porter’s Five Force Analysis of the Retail Finance Industry
Bargaining Power of Supplier : Supplier is generally another bank or RBI. Bargaining power is generally market driven depending on the overall liquidity. As there are many suppliers, there is low bargaining power of supplier. However under liquidity crisis conditions, the bargaining power rises. Hence we can take the bargaining power of supplier as Low – Moderate. Bargaining Power of Customers : Bargaining Power of customers is high in the retail finance industry with huge financing options available to the customer. Most of the PSU banks offer lesser rate of interest – however, due to their poor service level and tight credit norms, the customer may choose higher rate of interest bank with better service levels. Hence bargaining power of customers is high in this industry. Barriers to Entry : In retail finance industry, barriers to entry are low. It is a highly competitive market with very low interest rates and high payouts to dealers. However, there are many
markets which are not yet captured by the present financiers. Hence, there is space for new financiers to enter. Threat of Substitutes : Substitute to organised retail finance is unorganized finance or cash purchase. However due to higher interest rates of unorganized players and better avenues for cash investments available, bank loan is a better option. Hence, threat of substitutes is low. Competitive Rivalry : Large battles of interest rates and collusions with automobile dealers are widely seen in this industry. Highly competitive interest rates, Strong Bonds with dealerships, Discounts, Special Offers, Advertising Campaigns, show the intense competitive rivalry in this industry. The competitive rivalry is high in this industry.
Life Cycle Analysis Stages of a growth model
The industry is predicted to be in the Growth – Shakeout area as the rivalry has intensified and also growth opportunities are huge as the car industry has a lot of
growth opportunities in the years to come with the positive demographics and space for growth ( car penetration only 7.5 per 1000)
Resources Analysis
Value Chain Analysis of the Retail Finance Industry
Briefly put, the bank designs the interest rate and its auto loan scheme & then bank & manufacturer jointly market the scheme ( with any additional benefits of manufacturer included). Then customer purchases the loan and makes the repayment as per the bank’s repayment schedule. After total repayment, the loan is closed or if the loan is not paid, vehicle is repossessed and then sold to recover the loan amount. Primary Activities Scheme of Interest Rate/EMI/Down Payment by the Bank & Manufacturer -> Marketing of the Scheme -> Sale of the loan -> Repayment in EMIs - > Closure of Loan Support Activities Bank Infrastructure at the dealerships, Information systems for the exchange of information, Human Resources
Loan Sourcing Ways:
A Typical Loan Process : 1. Customer walks in 2. DSE does profile to bank matching for the customer 3. DSE explains the deal offered by the banks 4. Financer is finalized 5. DSE processes the application through at least three banks 6. Verification process ( 1 day) 7. FI positive/FI negative/Redo FI ( decided by the bank) 8. A file containing following documents ( wrt KYC norms) is sent to the bank 7a FOR SALARIED a) Form 16 OR 2 yrs ITR b) Latest 2 salary slips c) 6 months bank statement
d) Address proof ( Passport, DL) e) Office i-card f) Customer Pan card g) DOB proof h) Signature Verification 7b FOR SELF EMPLOYED All above documents required 9. Next day the file goes to the credit department of the bank 10. Checks Customer eligibility 11. Same is conveyed to the dealer 12. Processes (6-11) takes on an average 3 days 13. If the customer is eligible DO ( delivery order) is issued by the bank in favour of the dealer. 14. Hypothecation clause is signed by the customer 15. Customer takes the delivery of the vehicle. 16. Dealer receives the pay order by the bank within 1 week. 17. For a one shot case time lag between the customer walking in and the delivery is 3 days.
Customer profiling by banks PSU Banks • Stability in income (Preferably Govt. employees) Stability in place of residence (Preferably own house) Private Banks • • Slight stability in income Stability in place of residence (No negative area) NBFC’s • Regular income not a necessity (e.g. farmers, builders, etc.) Residence in negative area
•
•
Key Strategies identified by the department a) Induction of new Players for Retail and Whole sale Funding b) Working closely with the Product Groups and Regional Teams to work out profile/product/area specific finance schemes. c) Market expansion – into Semi-urban & Rural areas d) E banking in wholesale funding e) Product improvements
This project will only focus on retail finance aspect of the department.
Information Analysis
Critical Success Factor (CSF) analysis is a method for information requirements analysis.
Critical Success Factors of the Maruti Finance Function
Key Decision 1. Design a scheme for a particular geographical market & monitor it
Key Information For designing a scheme for a particular market, we should know, the market conditions – models sold, key financiers & their market share, dealership network, finance penetration, demographics of the market, history of marketing schemes and their results For monitoring the scheme, we need data of cash sales and retail finance – Dealer wise, Model wise, Financier wise
2. Design a scheme for particular institutions (Government Employees/Corporates) & monitor it
For doing a Campaign for institutions, we need information of Financier having accounts for that institution Canopy event permission and space availability Institutional representative’s email address and the company address for POP For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, Institution wise
3. Design a scheme for Rural market & monitor it
Study Rural Market Characteristics – using historic sales data- model wise, area wise, dealer wise, financier wise, scheme wise sales Financier’s Bank Location details to be known for the marketing activity Simplified car loan scheme/ process for
Rural customers For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, Rural Market wise, State Wise
4. Design a scheme with a bank & monitor it
Bank’s marketing of scheme through mails/posters Electronic Display and Hoardings locations For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, City Wise, State Wise
5. Incentive scheme to bank employees
For this we require branch wise data of every bank. So, the dealer data should contain the bank branch field as well to provide incentive to the branch employee for his exceptional service Date of loan request and Date of loan sanction to be noted for recording TAT of the dealership. Also the data should be – Dealer wise, Model wise, Financier wise, Customer Profile wise (Type of business, CIBIL Score, Annual Income etc) Financier’s information of – where in the process is the file and approximately number of days required, should be indicated
6. Monitor TAT of a particular dealership
7. Monitor rejection cases of banks
Financier/Dealer should enter information of the case being rejected, customer details, dealer details, model details, Reason for rejection Market information of interest rates
8. Monitor interest rates for design
of schemes Dealer information of financier wise dealer payout % 9. Financier Performance Review Dealer – Financier wise cases, Meetings held with different dealers, Relationship issues, Process issues through feedback from dealers
IS Solutions
Evaluating Existing Systems The present system is : collection of data from the insurance system data base. Maruti Insurance has about 90% penetration in the new car sales. Hence, there is 90% accurate data. For the rest, it is extrapolated manually (extrapolated towards the sales data). Also, Maruti maintains a Dealer Management System (DMS) which contains data of retail sales, customer profile, and vehicle model. Although the DMS contains Finance field as well, dealers generally do not enter those details as they are not trained and that is of no value to them. However, when there are schemes where there is an incentive to the dealer, they do enter the details in the system. Evaluating the existing information systems on the basis of a) Need for change b) Changeability Need for change Firstly, there is a need for change from manual to the automatic system. There is no requirement of a manpower specifically employed for making MIS reports alone. Few reports are tracked daily by the top management ( Marketing & Sales National Head, Chief General Manager – Sales). It indicates the macro economic developments and also sales and finance trends at each geographic location. Also, the presently, data is sourced through Maruti Insurance database. However, MI database is not integrated with DMS and also, it is not integrated with the Institutional Sales system, and also it is not integrated with the financier’s system. Integration of these systems is necessary for accurate information which would aid in the decision making. Also, the present system is manually prepared in excel sheet, and it is not easy to use. If we had a software we could instantly generate reports with the given fields,
that is much better than these fixed fields which are manually prepared which incurs a lot of time, cost and effort. Also, the present system is not error free, it takes MI data and extrapolates it and hence it has an error of about 10%. Changeability The MI system design is modular and it can be mapped with the DMS system. However, the external system of bank is slightly different and it is customer based, and hence difficult to be integrated. However documentation of every module in the DMS system is not available. Nevertheless, it is possible that documentation is entered from now on so that the data systems are integrated properly. And it is worth investing in this project, as this data gives the key developments in the market and helps a manager take effective decisions on the scheme applicable, financier to pick, sales targets etc. Sample Manual Report Contents A. Reports to the Middle-Level Managers ZON E RE G DEALE R CITY CODE Deal er Code For Cod e RETAIL S Financi er Penetrati on
1. Dealer wise, City wise, Region wise, Zone wise, Finance details as shown above 2. Model Wise Finance 3. Car Loan Interest Rate Movement 4. SBI performance – Local Head Office wise
B. Reports to the Top Management 1. All India Penetration Graph 2. Top 20 Cities, Bottom 20 Cities 3. Region wise, Financier wise data 4. Trend of Finance penetration (since last 3 years)
Gaps Identified 1. Automatic Systems using MI system 2. Erroneous data ( due to extrapolation) 3. No integration of DMS and MI System 4. No integration of Bank system and MSIL system 5. No TAT measurement
Proposed IS Solutions 1. Automatic Reports using Maruti Insurance (MI) data The manual reports now prepared, can be replaced by a simple automatic system which uses the present MI data and prepares reports based on it using appropriate software coding. It is a temporary replacement to a more expert solution. Nevertheless it reduces human effort in preparing these routine reports. 2. Integration of MI and DMS System The integration of MI and DMS system will help with complete information of sales under MI and Non-MI. Also, if it becomes mandatory to enter hypothecation data, whether it is MI or Non-MI, then the financier details of 100% customers would be made available. This would help in removing the errors of the system. 3. Integration of Bank and MSIL system The integration of Bank’s system and MSIL system would help in avoidance of dealer’s double effort of entering the financier details. The financier would enter his details and it would automatically reflect in our system. However, as the financier is an external party and there are large set of financiers, it is not possible to integrate each and every system of all financiers. However, the financiers who are partners can be integrated and their numbers can be closely monitored through integration. Also, it helps identify the financier’s mode of approval, TAT level, and system deficiencies. However it is difficult to implement this system as, convincing the bank to share its system along with dealers is difficult and there can be many operational difficulties. Hence, this should be a long term strategy. 4. Measuring Service Level & Status To ensure transparency in the loan process, the status of the loan should be regularly updated onto the DMS so that dealer can inform the customer about their loan status. This needs integration of bank, DMS systems. However it can be even possible through electronic communication daily on the status of each case. Also, TAT level is not measured presently. It can be measured simply by indicating, date of loan application & date of loan sanction and comments to indicate the reasons for delay if any.
Implementation ( to be submitted as part 2)
(includes prioritization, value, readiness study)
doc_858375120.doc
IS plan for Maruti finance department. Goals are Improve car sales through better finance availability in terms of Penetration & Reach, Competitive / Transparent product, Ensure customer ownership resides within MSIL network and Generate additional revenues for the company/dealer.
IS Plan for
Maruti Finance Department, Maruti Suzuki India Limited
Submitted by
Contents
About Maruti Suzuki India Limited Vehicle Finance Industry Evolution Maruti Finance Department Introduction IS Plan for Maruti Finance Department a) Goals b) Strategies Environment Analysis 1. SWOT Analysis 2. Porter’s Five Force Analysis of competitive structure 13 3. Life Cycle Analysis Resources Analysis 4. Value Chain Analysis Typical Loan Process 16 18 19 19 20 20 22 22 23 24 14 15 15 11 12 12 12 3 4 7 11
Strategies of the department c) Information Analysis Critical Success Factors Key Decisions Key Information d) IS Solutions Existing Info System Analysis Gaps Proposed Systems
Maruti Suzuki India Limited
Vision
The leader in Indian Automobile Industry, Creating Customer Delight and Shareholder’s Wealth; A pride of India
Mission
To put India on 4-wheels ( or to motorize India)
Core Values
• • • • • Customer Obsession Fast, Flexible & First Mover Innovation & Creativity Networking & Partnership Openness & Learning
Brief Introduction of Maruti Suzuki India Limited (MSIL)
More than 50% of cars sold in India wear a Maruti Suzuki badge. MSIL is a subsidiary of Suzuki Motor Corporation, Japan. They offer full range of cars- from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. Since inception, they have produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. MSIL’s turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs. 12,187 Million.
Passenger Vehicle Finance : History
Evolution of Passenger Vehicle Financing in India
Late 1980s: Organised financiers entered “Auto Loan” Space • • • • NBFCs were mostly involved in leasing activities In 1987, Citibank was first to offer auto loans through a scheme- Citimobile which was much profitable than leasing. Inspired by Citibank, many NBFCs entered this space Yields in the business were in the range 25-30%
Early 1990s: Auto Finance Market Growth • • • • • New models- Esteem and M1000 were launched by Maruti Udyog Limited. Demand exceeded supply and these Auto Finance companies purchased vehicles and sold them at a premium of 20-30,000 Yields in the business were in the range 30-36% Leading players were the NBFCs- Anagram, Apple Finance, Gujarat Lease Finance NBFCs helped in increasing the acceptability of finance and developing the market
1996 to 1998 : Yields fall as supply increases • • • • NBFCs were the only players in the organized market GM, Ford, Daewoo entered India thereby increasing vehicle supply Auto Finance companies instead of demanding premiums, offered discounts to get rid of the stocks The Yields fell to 18-20% range
•
Total organized market in India was expected at Rs 42 Billion in 1997-98
1998-2003: Entry of Banks • • • • Change in practice from subvention to reverse subvention Kotak introduced the Esteem Bonanza scheme with subventions from MUL. With this, manufacturers discounts to financiers came into existence. Dealers also offered subventions to Financiers to boost sales. However, post 2000, entry of banks intensified competition. The concept of reverse subvention was born when financiers started offering subventions to increase business volumes. In 2002, MUL, entered into tie-up with 8 auto finance companies to finance its cars under Maruti Finance There was a shift in dominance : From NBFCs to Private Banks During 1998-99 and 2002-03 the total organized new car market grew by 23% CAGR to reach Rs. 164 Bn Declining yields forced players to enter into Used car market to increase overall portfolio yields. Yields in Used Car market are generally higher than new car market by 4-5%. In 2002-03, Used car finance market was about Rs. 15Bn
• • • •
2003-06: Intense Competition • • • • • • PSUs enter the market with aggressive plans. SBI launches 2599 scheme with Maruti for their model M800 Union Bank of India partnered with Ford for the Non-metro segment, signaling increased focus on rural sector. New auto finance market grew at 38% to reach Rs. 227 Bn with auto financiers cutting rates and extending tenures. Organised Used car market grew to Rs. 19Bn and became focus area for private banks By the end of 2005-06, banks dominated the Auto Finance space. They captured 65% market share of the total market of 401 Bn Some players made losses on the net margin level
•
Standard Chartered, ABN Amro, Ford Credit and Countrywide Finance exited the market
2007-2008 • • • 2007-08 witnessed an increase in interest rates for car loans. Car Sales are expanding more and more into rural areas HDFC becomes the number one financier overtaking ICICI Bank
2008-2009 : Liquidity crisis for NBFCs • • • • • Due to poor liquidity conditions, NBFCs go slow in vehicle financing ICICI Bank exited 2-wheeler financing and even in car financing it went very slow Auto Manufacturers tied up with many PSU banks for retail funding PSUs rescued the auto sales with many new PSUs capturing the market with aggressive sales. SBI became the number two financier with its volumes very close to the number one HDFC bank
Maruti Finance
Core Functions
Maruti Finance is a consortium of about 23 financiers, that was initiated with following objectives • • • • • • Enhanced Customer Ownership and retention. Increase Car sales through easy availability of organized finance. Dealership as one stop shop. Increased Dealer revenues through Finance activities in the form of payouts (negotiated by the dealer with the financier). Reduce dependence on Direct Sales Agent (DSA) for Car sales. MSIL to act as aggregator instead of DSAs/ Finance Cos.
Car Finance Advantages
? Increases sales through enhanced reach to various customer segments & geographies ? Finance option makes the car more affordable to the customer ? A good finance deal leads to better buying experience and hence increases customer loyalty ? To Enhance dealer Revenues and have greater dealer control on the car finance Market ? To reach out to customers in different segment MSIL has tied up with several financiers based on their strength to provide finance option to more & more customers
Maruti Finance Partners
Reason for its diversified partners
Market is diverse – comprising of rural, semi-urban and urban segments and each financier is strong in different segments in different geographical location.
Also, each bank has a slightly different approval mechanism and processes. Hence, a customer who may get rejected from one bank, may get approval from another bank. Hence, the diversity. Also, each customer has his own preference to transact with a particular bank.
Strengths of different partners PSU Banks
• • • • • Transparency in deals Funding on On-RoadPrice Low Interest Rate Low foreclosure charges Low Processing fee • •
Private Banks
• Dedicated man power at dealerships (retainers) Faster Service Level Low Margin Money • • •
NBFC
Greater coverage in rural areas Less documentation required Not strict on profiling
Benefits of Maruti Finance
CUSTOMERS • • • • • One-stop Shop Availability of Organized Finance Loans at most competitive rates Loan on Accessories, Insurance & Extended Warranty Transparent Deals • • • • DEALERS Direct control of the Finance Market. Reduced dependence on DSA cases Increased Profitability Increased Customer Loyalty
SALES STAFF • • • • Ownership of Customer from Day 1 Better Relationship with Customer Better Relationship with Finance Company More Incentives • • • •
MARUTI Increased Reach of Maruti car Market More Value to customer, more than just Car Improved Ownership Experience for Maruti Customers More Vehicle Sales
Preparing IS Plan for Maruti Finance Department
Goals:
a) Improve car sales through better finance availability in terms of Penetration & Reach b) Competitive / Transparent product c) Ensure customer ownership resides within MSIL network d) Generate additional revenues for the company/dealer
Strategies:
To do the strategic analysis of the business, let us understand the environment and resources. Environmental Analysis 5. SWOT Analysis 6. Porter’s Five Force Analysis of competitive structure 7. Life Cycle Analysis
SWOT Analysis of the Retail Finance Industry
Strength Key driver of vehicle sales Large supply base - Presence of many players - PSU/Private/Foreign banks & NBFCs Aids in managing seasonal sales fluctuations by liasoning with manufacturers for offering discounts Helps in providing wholesale finance to the dealers Works closely with the manufacturers to work out profile/product/area specific finance schemes Aids in market expansion Opportunity Car Market is rapidly growing Net Banking with Dealers & Manufacturer Joint Venture with manufacturer
Weakness Higher delinquency of few private financiers Relationships with dealers in few locations are poor due to poor service. Payout differential causes dealer to be biased towards financiers who give higher payout thereby forcing everyone for higher payout and inturn lower margins and higher interest rates to customers
Threat Failure of a (poorly designed) scheme Poor repossession norms Higher delinquencies
Porter’s Five Force Analysis of the Retail Finance Industry
Bargaining Power of Supplier : Supplier is generally another bank or RBI. Bargaining power is generally market driven depending on the overall liquidity. As there are many suppliers, there is low bargaining power of supplier. However under liquidity crisis conditions, the bargaining power rises. Hence we can take the bargaining power of supplier as Low – Moderate. Bargaining Power of Customers : Bargaining Power of customers is high in the retail finance industry with huge financing options available to the customer. Most of the PSU banks offer lesser rate of interest – however, due to their poor service level and tight credit norms, the customer may choose higher rate of interest bank with better service levels. Hence bargaining power of customers is high in this industry. Barriers to Entry : In retail finance industry, barriers to entry are low. It is a highly competitive market with very low interest rates and high payouts to dealers. However, there are many
markets which are not yet captured by the present financiers. Hence, there is space for new financiers to enter. Threat of Substitutes : Substitute to organised retail finance is unorganized finance or cash purchase. However due to higher interest rates of unorganized players and better avenues for cash investments available, bank loan is a better option. Hence, threat of substitutes is low. Competitive Rivalry : Large battles of interest rates and collusions with automobile dealers are widely seen in this industry. Highly competitive interest rates, Strong Bonds with dealerships, Discounts, Special Offers, Advertising Campaigns, show the intense competitive rivalry in this industry. The competitive rivalry is high in this industry.
Life Cycle Analysis Stages of a growth model
The industry is predicted to be in the Growth – Shakeout area as the rivalry has intensified and also growth opportunities are huge as the car industry has a lot of
growth opportunities in the years to come with the positive demographics and space for growth ( car penetration only 7.5 per 1000)
Resources Analysis
Value Chain Analysis of the Retail Finance Industry
Briefly put, the bank designs the interest rate and its auto loan scheme & then bank & manufacturer jointly market the scheme ( with any additional benefits of manufacturer included). Then customer purchases the loan and makes the repayment as per the bank’s repayment schedule. After total repayment, the loan is closed or if the loan is not paid, vehicle is repossessed and then sold to recover the loan amount. Primary Activities Scheme of Interest Rate/EMI/Down Payment by the Bank & Manufacturer -> Marketing of the Scheme -> Sale of the loan -> Repayment in EMIs - > Closure of Loan Support Activities Bank Infrastructure at the dealerships, Information systems for the exchange of information, Human Resources
Loan Sourcing Ways:
A Typical Loan Process : 1. Customer walks in 2. DSE does profile to bank matching for the customer 3. DSE explains the deal offered by the banks 4. Financer is finalized 5. DSE processes the application through at least three banks 6. Verification process ( 1 day) 7. FI positive/FI negative/Redo FI ( decided by the bank) 8. A file containing following documents ( wrt KYC norms) is sent to the bank 7a FOR SALARIED a) Form 16 OR 2 yrs ITR b) Latest 2 salary slips c) 6 months bank statement
d) Address proof ( Passport, DL) e) Office i-card f) Customer Pan card g) DOB proof h) Signature Verification 7b FOR SELF EMPLOYED All above documents required 9. Next day the file goes to the credit department of the bank 10. Checks Customer eligibility 11. Same is conveyed to the dealer 12. Processes (6-11) takes on an average 3 days 13. If the customer is eligible DO ( delivery order) is issued by the bank in favour of the dealer. 14. Hypothecation clause is signed by the customer 15. Customer takes the delivery of the vehicle. 16. Dealer receives the pay order by the bank within 1 week. 17. For a one shot case time lag between the customer walking in and the delivery is 3 days.
Customer profiling by banks PSU Banks • Stability in income (Preferably Govt. employees) Stability in place of residence (Preferably own house) Private Banks • • Slight stability in income Stability in place of residence (No negative area) NBFC’s • Regular income not a necessity (e.g. farmers, builders, etc.) Residence in negative area
•
•
Key Strategies identified by the department a) Induction of new Players for Retail and Whole sale Funding b) Working closely with the Product Groups and Regional Teams to work out profile/product/area specific finance schemes. c) Market expansion – into Semi-urban & Rural areas d) E banking in wholesale funding e) Product improvements
This project will only focus on retail finance aspect of the department.
Information Analysis
Critical Success Factor (CSF) analysis is a method for information requirements analysis.
Critical Success Factors of the Maruti Finance Function
Key Decision 1. Design a scheme for a particular geographical market & monitor it
Key Information For designing a scheme for a particular market, we should know, the market conditions – models sold, key financiers & their market share, dealership network, finance penetration, demographics of the market, history of marketing schemes and their results For monitoring the scheme, we need data of cash sales and retail finance – Dealer wise, Model wise, Financier wise
2. Design a scheme for particular institutions (Government Employees/Corporates) & monitor it
For doing a Campaign for institutions, we need information of Financier having accounts for that institution Canopy event permission and space availability Institutional representative’s email address and the company address for POP For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, Institution wise
3. Design a scheme for Rural market & monitor it
Study Rural Market Characteristics – using historic sales data- model wise, area wise, dealer wise, financier wise, scheme wise sales Financier’s Bank Location details to be known for the marketing activity Simplified car loan scheme/ process for
Rural customers For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, Rural Market wise, State Wise
4. Design a scheme with a bank & monitor it
Bank’s marketing of scheme through mails/posters Electronic Display and Hoardings locations For monitoring the sales – we need cash sales and retail finance data – Dealer wise, Model wise, Financier wise, City Wise, State Wise
5. Incentive scheme to bank employees
For this we require branch wise data of every bank. So, the dealer data should contain the bank branch field as well to provide incentive to the branch employee for his exceptional service Date of loan request and Date of loan sanction to be noted for recording TAT of the dealership. Also the data should be – Dealer wise, Model wise, Financier wise, Customer Profile wise (Type of business, CIBIL Score, Annual Income etc) Financier’s information of – where in the process is the file and approximately number of days required, should be indicated
6. Monitor TAT of a particular dealership
7. Monitor rejection cases of banks
Financier/Dealer should enter information of the case being rejected, customer details, dealer details, model details, Reason for rejection Market information of interest rates
8. Monitor interest rates for design
of schemes Dealer information of financier wise dealer payout % 9. Financier Performance Review Dealer – Financier wise cases, Meetings held with different dealers, Relationship issues, Process issues through feedback from dealers
IS Solutions
Evaluating Existing Systems The present system is : collection of data from the insurance system data base. Maruti Insurance has about 90% penetration in the new car sales. Hence, there is 90% accurate data. For the rest, it is extrapolated manually (extrapolated towards the sales data). Also, Maruti maintains a Dealer Management System (DMS) which contains data of retail sales, customer profile, and vehicle model. Although the DMS contains Finance field as well, dealers generally do not enter those details as they are not trained and that is of no value to them. However, when there are schemes where there is an incentive to the dealer, they do enter the details in the system. Evaluating the existing information systems on the basis of a) Need for change b) Changeability Need for change Firstly, there is a need for change from manual to the automatic system. There is no requirement of a manpower specifically employed for making MIS reports alone. Few reports are tracked daily by the top management ( Marketing & Sales National Head, Chief General Manager – Sales). It indicates the macro economic developments and also sales and finance trends at each geographic location. Also, the presently, data is sourced through Maruti Insurance database. However, MI database is not integrated with DMS and also, it is not integrated with the Institutional Sales system, and also it is not integrated with the financier’s system. Integration of these systems is necessary for accurate information which would aid in the decision making. Also, the present system is manually prepared in excel sheet, and it is not easy to use. If we had a software we could instantly generate reports with the given fields,
that is much better than these fixed fields which are manually prepared which incurs a lot of time, cost and effort. Also, the present system is not error free, it takes MI data and extrapolates it and hence it has an error of about 10%. Changeability The MI system design is modular and it can be mapped with the DMS system. However, the external system of bank is slightly different and it is customer based, and hence difficult to be integrated. However documentation of every module in the DMS system is not available. Nevertheless, it is possible that documentation is entered from now on so that the data systems are integrated properly. And it is worth investing in this project, as this data gives the key developments in the market and helps a manager take effective decisions on the scheme applicable, financier to pick, sales targets etc. Sample Manual Report Contents A. Reports to the Middle-Level Managers ZON E RE G DEALE R CITY CODE Deal er Code For Cod e RETAIL S Financi er Penetrati on
1. Dealer wise, City wise, Region wise, Zone wise, Finance details as shown above 2. Model Wise Finance 3. Car Loan Interest Rate Movement 4. SBI performance – Local Head Office wise
B. Reports to the Top Management 1. All India Penetration Graph 2. Top 20 Cities, Bottom 20 Cities 3. Region wise, Financier wise data 4. Trend of Finance penetration (since last 3 years)
Gaps Identified 1. Automatic Systems using MI system 2. Erroneous data ( due to extrapolation) 3. No integration of DMS and MI System 4. No integration of Bank system and MSIL system 5. No TAT measurement
Proposed IS Solutions 1. Automatic Reports using Maruti Insurance (MI) data The manual reports now prepared, can be replaced by a simple automatic system which uses the present MI data and prepares reports based on it using appropriate software coding. It is a temporary replacement to a more expert solution. Nevertheless it reduces human effort in preparing these routine reports. 2. Integration of MI and DMS System The integration of MI and DMS system will help with complete information of sales under MI and Non-MI. Also, if it becomes mandatory to enter hypothecation data, whether it is MI or Non-MI, then the financier details of 100% customers would be made available. This would help in removing the errors of the system. 3. Integration of Bank and MSIL system The integration of Bank’s system and MSIL system would help in avoidance of dealer’s double effort of entering the financier details. The financier would enter his details and it would automatically reflect in our system. However, as the financier is an external party and there are large set of financiers, it is not possible to integrate each and every system of all financiers. However, the financiers who are partners can be integrated and their numbers can be closely monitored through integration. Also, it helps identify the financier’s mode of approval, TAT level, and system deficiencies. However it is difficult to implement this system as, convincing the bank to share its system along with dealers is difficult and there can be many operational difficulties. Hence, this should be a long term strategy. 4. Measuring Service Level & Status To ensure transparency in the loan process, the status of the loan should be regularly updated onto the DMS so that dealer can inform the customer about their loan status. This needs integration of bank, DMS systems. However it can be even possible through electronic communication daily on the status of each case. Also, TAT level is not measured presently. It can be measured simply by indicating, date of loan application & date of loan sanction and comments to indicate the reasons for delay if any.
Implementation ( to be submitted as part 2)
(includes prioritization, value, readiness study)
doc_858375120.doc