Why talent retention is a challenge for the Indian Automobile industry
The auto sector contributes to almost 7% of the country’s GDP. As per the automotive mission plan 2026, the sector aims to increase its contribution to over 12% by 2026. Concurrent with this jump, the number of R&D engineers required in the country is also expected to shoot up, with almost 16 Mn jobs to be created in the auto sector. The automotive mission plan aims to generate another 65 Mn jobs by 2026. To add to that, authorities predict that India is expected to be the world’s third largest passenger vehicle market in 2021.
While all these statistics appear hunky dory, the market is beset with disruptions and changing norms. Right from a jump from BSIV norms to BSVI norms as well as in terms of FAME for electric vehicles, there are multiple disruptions coming into play such as autonomous vehicles, shared mobility, and requirement of new skills with the application of mechatronics, AI, robotics in the sector. Is the sector ready for these challenges? Does it have the requisite talent to brace for the coming changes? What are some of the stark talent challenges staring in the face of it?
Through its initiative “LEAGUE OF LEADERS”, the world’s leading integrated talent development and transition company, Lee Hecht Harrison (LHH), has embarked on a series of round table discussion with leaders from four core industries including auto, pharma, retail, and manufacturing to find the answers to these and many other questions.
The series which kicked off with the first round table in Pune, saw leaders from the auto industry coming together to identifying their sector-specific business challenges, draw correlations with other industries and work towards ideating innovative talent management practices.
The participants in the round table included eminent leaders from the industry such as Rajesh Nair, GM- HR Commercial Sales & Mktg, Tata Motors; Giovanni Sois, Head-HR, Piaggio Vehicles; Hyder Khan Ali, Vice President, Kinetic India; Tom Verghese, Head Talent Development, Fiat Chrysler; Nipun J Mahajan, VP- Sales, Fiat Chrysler; and Riya Arora, President, NHRD.
Talent Challenges: From a skewed playing field to stretched margins
The discussion was moderated by Ankush Puri, Director – India, LHH, who invited the leaders to share the most profound talent challenges currently being faced by the auto industry.
One of the foremost challenges which emerged from the discussion was that while India is poised to become the third largest industry in the world but it is still far away. This is because compared to the size of the market leaders (US, China) where the total volume of the industry is almost 10 times the size of the Indian market of roughly 3.5 Mn vehicle sales, India has a long way to catch up.
Moreover, 50% of the Indian market is dominated by one company. This means they have the entire playing field to themselves, which means the remaining 10-11 players are struggling for the remaining 50% pie. This results in even breaking even becoming a challenge and it puts a limitation to the growth these companies can provide to an individual in their organization. As a result, it caps the remuneration these companies can provide to the talent in this industry.
This implies that as the classic tussle between sales and cost plays out, auto companies cannot be promoting individuals every two years. In this scenario, how do you keep an employee engaged also becomes a daunting task.
“How do you retain your talented people given that you can’t change the somewhat skewed scenario of market share and profits?,” is a stark reality staring in the face of the sector.
Rising input costs and the problem of retention
While the manufacturing portion of the auto industry sucks up all the resources of the organization, the commercial or the operational portion or the revenue generation or the entire commercial team gets a smaller share of the resource pie. Ironically, this is also the segment which is facing greater challenges as far as the industry is concerned. Because when it comes to the commercial team, the remuneration and the opportunities are very less. In most sectors, the share of resource sharing between manufacturing and commercial is 50-50. But in the auto industry, it is skewed at 80-20.
Hence there is a need to focus more on the commercial part of the team so that the ones delivering the goods are engaged, involved and feel a part of the organization.
The rising input costs have a direct bearing on the retention problems in the industry.
The input costs are increasing continuously but the output cost or the selling cost has not increased at a significant pace because of the competitive pressure. As margins are already stretched, auto companies find it difficult to compensate employees properly. This is one of the major reasons for a lot of attrition in this sector. Added to that is the fact, that while the products have a long development cycle of about 24-48 months but the product gets outdated in six months. This facet of the industry again puts it at a disadvantage compared to industries such as the mobile or white goods where the development cycle is shorter.
Another challenge that the sector faces when it comes to retention is that in the uncertainty that’s prevailing, auto companies find it difficult to predict who to retain or when to retain.
Analyzing only the market trends is not enough- the industry needs to understand what are the components that the industry needs to retain and develop. The industry needs people who can adapt to the growing competitiveness of the market. Also, there is also a huge opportunity of expanding female leadership at the top in this sector.
While there are demands for niche skills in the market but the Indian market does not have many skilled people and whoever is skilled, is being sought after by others. Even campus hiring has not been able to solve this problem. A lot of campus hires tend to go for higher education after spending 3-4 years in the company. Even when their studies are sponsored by the auto companies, some might and some may not come back. Which again brings us back to the conundrum of whether you should care more for the 30% of the people who will run the show primarily or are the superchargers than the 70% who are just followers? Another challenge here is the objective identification of this 30 % of people.
To solve the problem of identification and retention of these 30% people, an assessment program is a tool to not only hire the right talent but also promoting and developing the right talent. One way to do this as suggested by the leaders was through quantifiable goal setting in order to remove the subjectivity in assessing talent. Hence by setting targets objectively and measuring them objectively is one way of separating the 30% excellent performers from the 70% average performers. Simultaneously, the importance of creating a culture of open communication and constant feedback was stressed so that there should be no need for annual appraisals. Managers need to be more of coaches than just be operational managers giving operational feedback which only gives incremental improvement but nothing beyond.
The skills gap and the pay gap
Another inherent challenge that came out in the discussion was that most people who join the industry are from technical backgrounds. They qualify on the technical ground and then they go on to become people managers. Hence some of them shy away from leadership and giving proper feedback, thus developing leadership skills is a challenge.
To compound matters further, though lakhs of engineers make their way out of colleges, yet the industry struggles to find good engineering talent. The industry doesn’t find competent guys ready to take up work-though they are functionally capable.
Then again, the life of a skill is also changing fast globally, further contributing to the skills gap in this sector.
In addition to the skills gap, there is also a pay gap. The leaders averred that the auto industry is one of the lowest paying industries when compare to say pharma or telecom. Salary levels have not gone up as compared to other sectors. That’s why the industry has to manage the talent it has and spend more energies in developing them.
As one leader aptly stated, “Our industry pays what we can afford.”
The challenge of talent development at the channel level: another story
The challenges at the channel level or the dealer level are yet another story. The dealerships that have a low conversion ratio are most vulnerable and feel most pressurized to move to newer options. Profitability at the dealership level is a challenge for most auto companies.
The leaders discussed how can the industry support them? While technologies like online showrooms or digital showrooms will have their play but it will be limited. Hence multi-brand showrooms like in the case of electric vehicles could be one solution, as suggested by one of the participants.
However what was stressed upon most was that auto companies need to take part in ownership of the people working at the channel level. Most of the people who join a dealership need to be better engaged. Most of them join a brand but work for a company which is where they feel the disconnect.
While the OEMs do not want to be running the dealership’s business but they also feel the need to enable them.
Talent and retention is a huge issue at the dealership-so can OEMs standardize recruitment for the dealers?
One way suggested was to help the dealership in an indirect fashion in recruitment and performance management systems. Helping them in sourcing candidates is one way to help the channel. One of the OEMs shared a CSR initiative rolled out by them in that direction where it provides training to talent in rural areas at minimal fees to make them fit for the channel. A part of them is then absorbed into their dealerships.
In addition, recognizing top-selling dealerships is also one way of making them feel closer to the OEMs. Providing something like a subsidized insurance coverage to the talent at the dealership are small things to bring engagement and connection with the OEM.
While a lot was deliberated upon, it is clear there is much more that needs to be done to go to the root of these challenges that were brought forth in the first part of the discussion. The next chapter at Chennai in February will further probe into what more can be done to solve the talent challenges of the auto industry. Stay tuned.
(This article is based on the first round table conducted under the “LEAGUE OF LEADERS” initiative by Lee Hecht Harrison (LHH) in association with People Matters at Pune on 29th January, 2019.)