Just when it seemed like Porsche India had driven past a series of legal tussles and business upsets, the legendary sports car maker, owned and managed by the Volkswagen Group is on tenterhooks again. Last week, Porsche and Audi dealers Rashpal Singh Todd (Rashy) and Mandhir Singh Todd (Mikey) were taken into custody by the authorities at the New Delhi airport. According to an HDFC Bank Official who confirmed that they filed an FIR, the alleged wrongdoing involved defaulting on collective bank loans of Rs 2.7 billion.
The Todds, who own Zenica Group, a dealership firm that sells Porsches as well as Audis, and are part of the Volkswagen portfolio, had borrowed from a consortium of banks including HDFC Bank and failed to make payments. Rashy Todd didn't return calls or messages as of the time of going to press. Audi has already reacted by sending a notice to dealers and customers indicating the Todds are no longer associated with them and Porsche, according to a source is going to do the same in a few days. Porsche India officials declined to confirm or deny if they were going to plug on Zenica as well.
The Todd's however, couldn't be totally in the wrong, is the opinion of one car dealer who knows them both well. "They (Todds) have been the top performer for both Porsche and Audi in terms of volumes by giving consistent sales over the years,"he said. "So clearly, something was going right."
Even so, the pressures of running sports car dealerships may be underestimated. For example, running a Porsche showroom is expensive with anywhere from Rs 250 million to Rs 300 million in expenditure in fit-outs for a store alone. Parts and materials have to be on par with showrooms worldwide, in addition to the costs of employees, land and rentals.
While car dealers are independent of car manufacturers, customers see them as one and the same. "A customer's confidence is impacted when these things happen, "says Shailesh Surve, a doctor who also runs a shipping company. "I've bought Mercedes-Benz cars thrice and there's never been a doubt in my mind about their dealings." In the past, Surve had booked a Porsche Cayenne whose delivery was delayed for 9 months while his advance of Rs 7 million was kept by the dealer to his dismay. His opinion is that "There is some major issue with the due diligence that is being done for dealers at the corporate level."
Other sports car buyers say its hard to know where the buck stops. Yohan Poonawalla, Chairman of the Poonawalla Engineering Group and also an auto enthusiast who owns Ferraris, Lamborghinis, Rolls Royces and in the past, Porsches, says that in a company as large as the Volkswagen Group specific blame is hard to pinpoint. That being said, "ultimately, however the building or deconstruction of any high end car brand is in the hands of the dealer because that's the last and constant point of contact with the buyer."
When asked if the firm was doing thorough diligence and ought to be using executive search firms to hire its partners, Anja Wood public relations manager for Porsche's operations in the Middle East, Africa and India said in an email response that "due to ongoing legal investigations, we ask for your understanding that we cannot provide a response at this stage."
Often foreign car makers have to deal with union unrest or product recalls or grapple with the challenges of launching cars in a hyper-competitive market. In that context, Porsche India has the upper hand in at least one sense: it's sports cars that are legend for their performance and handling and ability to be driven every single day as opposed to more showy competitors that require a lot of maintenance and are double the price. But a great business has to go beyond just a great product.
Rakesh Batra, Ernst & Young's Partner and National Leader - Automotive Sector says multinationals need to take a step back and not just look at a dealer's access to real estate and VIP clients but also the viability of his or her business, depth of management, corporate reputation and so on. "Most auto companies are very large and have entire divisions dedicated to dealers, monitoring their activity and this is an extremely crucial function in any OEM," Batra says.
In the past, companies have experimented with the model of a master distributor as Porsche did with precision imports but history has shown it doesn't work."Bringing in a third party who is basically a broker and adds no value between a dealer and a manufacturer doesn't make business sense," Batra says. He's right. Nissan Motor also had friction with Hover Automotive a sole distributor partner it had appointed for six years that eventually resulted in both parties parting in 2014, and in Hover shutting down soon after.
One lesson to be learnt: avoid exclusive distribution deals which Porsche and Volkwagen moved away from. The more important one that needs to happen is ensure their partners are entirely aligned with the brand.