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Home Opinion OP-ED

Auto Service in Georgia on its Highway to Renewal

Keti Sidamonidze and Ludovic Girod, EXPERTO CONSULTING by Keti Sidamonidze and Ludovic Girod, EXPERTO CONSULTING
July 25, 2016
in OP-ED
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The FINANCIAL — Cars have long ago become a basic marker of social achievement for the Georgian population. This assumption can be confirmed with statistical data: according to Geostat, in 2016 there were 1,100,000 registered cars in Georgia; more than a half of which – namely 60.9% – are passenger vehicles. These cars are owned by 40% of the Georgian population. The growth trend has been observed since 2008 and till today it maintains a growth rate of up to 8% annually. At the end of 2016, the number of registered vehicles is expected to increase further by 10-11%.

The import of cars became intensive in 2003. The main import markets for vehicles are the USA, Germany and Japan. These markets still remain competitive with each other as their offer corresponds to a variety of demand criteria. German as well as American cars are both left-hand drive vehicles whereas the steering wheel of Japanese cars is placed on the right side: these right-hand drive cars have a 30% share in general traffic flow – that is utterly not compatible with the basic traffic security issues. Other discrepancies concern a car mileage. For example, the mileage of German and Japanese cars is lower than that of American vehicles. Moreover, as far as American vehicles are concerned, diesel engines are not widespread among the offered car models. In these terms, German cars seem to correspond to various criteria and obtain a leading position; however, a price relationship changes the balance of power in favor of American and Japanese cars.

In 2015, the number of imported cars reached 7 thousand units. It is noteworthy to admit that used cars constitute a significant share in this overall number. These vehicles can be imported while being completely broken to be repaired in the country and, consequently, re-exported from Georgia to the neighboring countries since their markets do not deliver the same type of service. Nevertheless, the business of car restoration experiences a certain decline due to the current economic crisis that has an impact on cutting down on the number of imported cars to Azeri market.

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Due to a cheap pricing, the used cars are trendy among the Georgian population. The same statistical data published by Geostat reveal that the manufacture date of the registered cars before 2014 equals to 90.9%. Moreover, the updated data shows that around 400,000 registered cars (36%) have an operating age of more than 20 years. Taking into consideration the popularity of used cars as well as general trend growth of car imports, auto service can be regarded as a developing and prospective industry.

In Georgia, auto service is represented by several industrial players – car distribution centers, universal auto service centers delivered either by the companies or small private owners. The network of car distribution centers is quite extensive in the country and represented with such brands as BMW, Audi, Skoda, Nissan, Hundai, Toyota, Porsche, etc. Some car distribution centers sell cars without being acknowledged as licensed official distributors. These centers are usually well-equipped with good diagnostic devices. Another advantage with regards to car distribution centers concerns their possibility of integrating the expertise of the Western homologues in their practice and organizing the training courses for their staff abroad. However, their service does not cover all the needs since they repair cars only of specific brands represented within a distribution center. Along with it, after expiration of a three-five year guarantee period, some of their clients opt for another auto service in search of more affordable prices. Universal auto service centers represent a good alternative for this audience.

Currently, there are a handful of big universal auto service centers in Georgia. These auto service companies are mainly based in Tbilisi: about 40% of vehicle service points are located in the capital. The biggest companies are Tegeta Motors, ITA, and Mate Motors, to name a few. Certain companies have only started expanding and also entering the auto service market – as is in the case of Premium Auto Parts. The above mentioned companies are customary participants of tenders that at certain extent assure a constant and a secure way of money inflow. Corporate clients along with wholesale and retail customers represent different target groups for the companies. For instance, the share of corporate clients for ITA is around 23% taking into account that the company is wholesale-oriented. Another profile can be exemplified with the Premium Auto Parts. According to the Director of the entity, Mr. David Garakanidze, the organization leads a strategy to increase its profit margin from covering the end users’ needs: “Our Company has advantages as a universal auto service – we have a developed spare part supply chain. Well developed spare part supply chain is very important for auto service companies since it enables them to carry out repair works efficiently in a short time”.

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Nevertheless, the creation of own spare parts stock is a costly initiative because it requires a capital investment of around GEL 1,000,000. And even this investment should be extended further to acquire new and special spare parts for this fast developing industry of car manufacturing. In search of solutions, smaller companies prefer cooperating with bigger ones such as Tegeta Motors to purchase spare parts necessary for repair works. Generally speaking, auto body parts used for repair works in Georgia are often second-hand while other spare parts for a running gear are often bought from the European companies such as Mobil1, Continental, Bosch, Hazet, etc. Each company tries to extend its offer to satisfy the needs of clients with different levels of quality requirements.

The competitiveness of auto service centers depends directly on a range of services they offer. The training manager of Precision Auto Service, Mr. Badri Danelia, elaborates that the most common services are repair works of a running gear and of an automatic transmission. To become distinct and indispensable, the company should work on its service offer: “Precision Auto Service has its particularity – a tune up, a service procedure that makes an engine run better and more efficiently. Our company can identify car potential defects as well” – mentioned Danelia. Other experts point out such services as interior and exterior tuning as well as boosting of engine horse power as less common. Numerous auto service centers do not have at their disposition updated diagnostic equipment as this is a very capital intensive acquisition. As Mr. Garakanidze remarks it brightly, “before jumping into repairing any car, you should first detect the cause of a given problem”.

The auto service market is driven towards innovation. Mr. Merab Cheishvili, Marketing Manager of ITA, confirms this assumption by mentioning the interest of his company towards Italian Magneti Mareli equipment based on an innovative concept of paint layer detection. Universal auto service centers are also in need of licensed applications and diagnostic equipment in order not to lag behind car distribution centers in terms of technical advancement. Moreover, universal auto service centers should stay informed about the progress in the automobile sector. It can be achieved by various means: attending international exhibitions, e.g. the one taking place annually in Frankfurt; consulting the forums; organizing conferences; educating staff abroad; and last but certainly not the least, creating partnerships with Georgian educational institutions. Some companies try to develop international partnerships by joining reputable corporations. For example, Premium Auto Parts is a member of ATR (Spare Parts Pool), the corporate umbrella of big independent trading organizations for automotive spare parts and a service centre for four garage service concepts. ITA is a member of Nexus Automotive International, an innovative, value-focused international alliance of leading parts distribution companies. This type of cooperation encourages Georgian companies to work further on service improvement and get introduced to new technologies represented by new car models.

At this point, the country still lacks experience and equipment to repair hybrid vehicles that use two or more distinct types of power such as electric motors and internal combustion engines. According to Mr. Danelia, it can soon generate a serious problem because these cars have been actively imported to Georgia since 2006 and no solution to repairing the hybrid cars has been found yet. Furthermore, there are few experts working on diesel engines. Search of experts underlines a necessity of a professional market as its extension due to lower prices for cars should not imply random choices of workers causing general de-professionalization of the industry.

Aspirations towards innovation, professionalism and diversification of services incite the Georgian auto service companies to look for foreign partners. The aspiration towards partnership is not only geared with a wish to buy modern equipment. Some of the companies are interested in extending their services to other Georgian regions. The marketing manager Mr. Cheishvili revealed to Experto Consulting that ITA has decided to launch 12 units of Fast Vehicle service points in Tbilisi as well as the regions of Georgia. To execute the plan and cover all the charges, the amount of approximately USD 2 million is required.

Modernization of auto service industry in Georgia should become integrated into the framework of fast developing automobile sector: the number of compact and electric cars will be constantly increasing in a long-term perspective and the auto service of the country should be capable of meeting the challenges of this inevitable transition.

This report is exclusively provided to The FINANCIAL. 

About Experto: French-Georgian consulting company EXPERTO provides market entry services for foreign companies interested in the Caucasus markets.

 

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