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A Turning Point in Automotive Service

A study commissioned by Automechanika, Messe Frankfurt Exhibition GmbH

by Automechanika, Messe Frankfurt Exhibition GmbH Prof. Dr. Willi Diez September 2010 Institut für
by Automechanika, Messe Frankfurt Exhibition GmbH Prof. Dr. Willi Diez September 2010 Institut für

Prof. Dr. Willi Diez

September 2010

Institut für Automobilwirtschaft (IFA) at the Nürtingen–Geislingen University (HFWU) http://www.ifa-info.de

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Table of contents

Summary of key results

1. Introduction: Innovative service worlds

2. Situation and development trends in the automotive service market11

8

2.1 The service industry is reaching the limits of growth

11

2.2 Increasing workshop rates and parts prices

13

2.3 Competitive situation: from “peaceful coexistence” to

“predatory competition” 15

2.4 Dealer satisfaction in aftersales business

20

2.5 Political framework: aftersales focus of BER

23

2.6 Deceptive profit

24

2.7 Interim conclusion I: Automobile service – from the

25

cornerstone of profits to Achilles heel?

3. A turning point in aftersales – eight trends characterise the market of

the future

26

3.1 Trend I: The service market will develop negatively

26

3.2 Trend II: Older vehicles continue to gain in importance

30

3.3 Trend III: Internet exchanges direct customer flows

31

3.4 Trend IV: Intermediaries will change the market structure

35

3.5 Trend V: Polarisation of customer segments

39

3.6 Trend VI: The connected car

42

3.7 Trend VII: E-mobility

45

3.8 Trend VIII: Consolidation in the aftersales sector

48

3.9 Interim conclusion II: Trends in aftersales business - the

50

winners and the losers

4. Results of the IFA panel: challenges and opportunities in aftersales

business

51

4.1

Objectives and methods

51

4.3

Assessment of the competitive situation

54

4.4 Future opportunities in the aftersales sector

 

56

4.5 Future risks in the aftersales sector

 

56

4.6 Fields of action in the aftersales sector

57

4.7 Interim

conclusion

II:

Strengthening

the

strengths

a

promising strategy?

 

58

5. Strategies and fields of action in the service market of the future

 

60

5.1 Innovative service formats

 

60

5.2 Challenges, strategies and fields of action for the players in

the service market

65

5.2.1 Car manufacturers

65

5.2.2 Authorised dealers and workshops

71

5.2.3 Automotive suppliers

76

5.2.4 Parts wholesalers

78

5.2.5 Workshop systems

79

5.2.6 Workshop chains and specialised markets

81

5.2.7 Independent workshops

84

5.2.8 Specialists

86

5.3 Interim conclusion IV: Strategic options in the aftersales market of the future 88

6. Conclusion and prospects: new rules of play old players?

89

Summary of key results

A new era has dawned in the aftersales market. Influenced by new market and competitive conditions, new and growing customer requirements and ongoing technological development, the players in the service industry will have to reorient themselves in order to survive. At the same time, a long- term, irreversible consolidation is inevitable in aftersales in the coming years.

Eight trends characterise the service market of the future:

Trend I: Declining market volume

Considering the stagnating number of cars in Germany in the mid to long term and an additional decline in maintenance and repairs, aftersales business will shrink 6.3% to 13.2% by the year 2025. The saturation of the German automobile market, which has been evident for some time in the new and used car markets, has now reached the service industry.

Trend II: More older vehicles in use

Germany’s scrapping premium programme in 2009 led to approximately 2 million vehicles older than 9 years being eliminated from service. This represents a sales loss of around 700 million euros for the service market. The scrapping premiums however did not reverse the trend towards older vehicles, but simply interrupted it. Technical advances, fewer miles being driven and changed customer behaviour will again significantly increase the lifespan and length of use of vehicles in the coming years.

Trend III: Internet exchanges

The importance of the internet in service will continue to increase in the coming years. Online repair exchanges in particular will grow in importance and direct customer flows in much the same way as in today’s used car market and to a certain extent the new car market. Standardised maintenance and repairs will be most heavily influenced by this. The

importance of these online platforms will increase as more and more workshops join them.

Trend IV: Increasing importance of intermediaries

The shift of demand from private to commercial customers which has been observed in the German market for several years will increasingly affect aftersales business. Framework agreements will give leasing and fleet management companies in particular an increased say in which aftersales suppliers get how many cars and under what conditions in their shops. The trend “using instead of owning" will position additional innovative mobility service providers between the shop and the customers in large urban areas.

Trend V: Polarisation of customer segments

The trend of “erosion of the mid-range” observable in many areas will also lead to a polarisation of customer requirements in the aftersales domain. Well-to-do private customers with a strong affinity for cars will pose high demands on quality, service and convenience, while more price- conscious drivers with a small budget will lead to the emergence of discount-style service formats.

Trend VI: The connected car

Automotive systems will increasingly open up for new players thanks to increased use of portable end-consumer devices. More and more vehicle- related information is provided independently of the vehicle, which means that companies from outside the industry in the field of information and communication technology will have a growing influence on the choice of service provider.

Trend VII: E-mobility

The advent of the electric car and the growing importance of battery- powered electric vehicles in urban areas represent more than just a technological challenge for aftersales. Because new marketing models may apply for electric automobiles, access to aftersales for drivers of these vehicles will change. The personal relationship between drivers and their workshops will be further weakened when new, user-oriented business models emerge in the field of e-mobility.

Trend VIII: Consolidation in aftersales

The declining market and the described structural changes in aftersales will lead to a significant consolidation in the automotive service industry. A considerable increase in the number of automotive shops going bankrupt can already be observed in recent years. This figure is expected to reach an all-time high in 2010, with 480 shops becoming insolvent. By the year 2020, the number of car repair establishments is likely to decrease by a good 25% to only 32,850 workshops.

These trends tend to favour independent service providers not bound to a specific manufacturer. The loss of the direct initial customer contact represents a threat to the market position of automobile manufacturers and their contract partners which should not be underestimated. Market participants that are not affiliated with a certain manufacturer on the other hand can benefit from the shift in market structures towards older vehicles and intermediaries.

An online, explorative survey of authorised dealers and workshops conducted as part of the IFA Dealer Panel attempted to identify the opportunities, risks and fields of action for the aftersales business:

The authorised dealers and shops surveyed see the increasing technical complexity and the growing number of new technologies in vehicles as the key opportunities for the future of aftersales. Only one- third consider the trend towards the electric car as an opportunity for the future.

Survey respondents continue to regard claims management by automobile insurers as the greatest risk. They also fear growing price sensitivity amongst customers and perceive a danger in discount wars even in aftersales.

The primary fields of action of surveyed authorised dealers and workshops are training employees, increasing customer satisfaction and actively marketing services to ensure the shop is used to capacity. Other important fields of action include optimising shop processes, purchasing parts and accessories more inexpensively and reducing shop costs.

The survey shows that the authorised service providers have a relatively good understanding of the risks and challenges in the aftersales market of the future. It also shows their high flexibility and focus on technically complex shop work. The further qualification of shop employees is accordingly high on the agendas of surveyed companies.

To counteract the described development trends, in the future it will be necessary to offer more differentiated service formats that better cater to specific customer groups and needs. Today’s automobile service follows the principle of “all-round service”, which is increasingly proving to be non-ideal in meeting specific customer needs. Based on the trend analysis, the following four promising service formats can be identified for the future:

The premium service provider with a strong focus on well-to-do private customers with an affinity for cars, as well as user choosers from the commercial domain.

The service discounter, whose systematic menu pricing appeals to price-sensitive customers with a small mobility budget.

The service factory, offering standardised maintenance and repairs with guaranteed quality to intermediaries via a largely internet-based customer process.

The mobility service outlet, targeting both operators and users of innovative mobility services.

The service formats described above are already present in the aftermarket in rudimentary form. The key is to make the service formats consistent and implement them in a viable business model.

These trends mean that the established players will have to adjust their market and competitive strategies in the following ways:

Thanks to their domination of the authorised system and their size and financial resources, car manufacturers have a wider range of strategic options compared to other players in the service market. Additionally, automobile manufacturers can further develop into mobility providers, thereby expanding their basis for creating value. This could help them to counteract the growing power of intermediaries in aftersales and thus secure their parts sales.

Because authorised dealers and shops are bound to one or more manufacturers, they have less strategic room for manoeuvre. The main concern of this supplier group is to strengthen its position as the “brand champion” in their respective regional or local competitive environment. This does not necessarily mean a single-brand strategy; it could also involve acting as a multiple-brand dealer or service partner.

The biggest problem of automotive suppliers is typically a lack of direct access to end consumers. Because parts wholesalers act as a kind of gatekeeper for suppliers, securing shelf space in the wholesale product range is of tremendous strategic importance. This can be achieved by focusing on system components which are less interchangeable with the competition and by increasingly using low- cost locations to remain competitive in simple parts.

The wholesale parts market in Germany is considered to be oversaturated, so that an active consolidation strategy in this domain is a key strategic option. Furthermore, forward integration through expansion and enhancing brand awareness through shop systems play an important role in the wholesalers’ strategy portfolio.

Shop systems should increasingly emphasise their value for money in the future and take advantage of their multi-brand capability as a strategic strength. This also provides them with special opportunities to work with intermediaries.

Workshop chains and specialised markets are considered classic aftermarket discounters and should maintain this positioning. Interesting opportunities will open up for these suppliers in the “service factory” format, which requires a high degree of process standardisation.

The small size and limited financial resources of independent workshops leave very little room for strategic manoeuvre. An important strategic option for this supplier group is to affiliate with an internet- based repair exchange, where independent shops can showcase themselves as price-effective local alternatives.

Thanks to their distinctive profile as experts, specialists have excellent opportunities in business with intermediaries. Beyond this, they must expand their range of services to tap customer potential and increase the value created per customer.

Increasing market and competitive pressure combined with new automotive technologies are changing the rules of play in the aftersales market. The old distinction between the “authorised” and “independent” markets is becoming increasingly obsolete. Ultimately it is customers who are driving forward these changes. The growing share of “users” instead of “owners”, the increasing importance of large, centrally managed vehicle fleets, and the growing demands of private customers with respect to quality, convenience and price are forcing all players in the aftersales market to have a more professional market profile and customer-relevant processes.

All participants in today’s aftersales markets have access to strategic options to prepare for the future market and competitive situation. But it is also clear that in an overall declining market, consolidation is inevitable. This wave of consolidation will reach all groups and lead to a growing number of insolvencies, takeovers and mergers.

At the same time, however, it is becoming increasingly likely that new players will intervene in the market, thereby accelerating the consolidation process

even further. The “opening of the automobile system” and the trend towards electromobility will mean that companies from outside the sector will enter into the automotive industry's chain of value creation and will influence the direction of customer flows, either directly or as intermediaries. In so doing, they will capture a share of the margins achieved up to now in aftersales. The automotive chain of aftersales value creation will undergo a restructuring process in the years to come, not only in terms of “old” participants, but “new” ones as well.

1.

Introduction: Innovative service worlds

Visiting the dentist is an unpleasant and daunting occasion for most people. We go to the dentist either because of pain or a guilty conscience for

skipping regular checkups for so long. Berlin dentist Dr. Stephan Ziegler had

a vision of transforming the typical fear-inducing dentist appointment into a positive experience, according to the motto “enjoy being at the dentist”.

Dr. Ziegler hired renowned architects to design a dental office that transcends the usual standards; a medical practice that patients enjoy visiting and where they feel good. At the same time he developed a unique holistic treatment concept.

The vision was transformed into reality in a practice in the middle of Berlin:

“KU 64 - the dental office on Kudamm street”. The entire practice resembles

a sandy, sunny dune landscape, where it smells of coffee when you enter,

lounge music fills the rooms, an open fire burns in the waiting room fireplace and in summer you can enjoy the sunshine in a deck chair on the outdoor terrace. In addition to complete dental services, a massage can be booked with a naturopath following treatment, and the practice has expanded to include cosmetic surgery. The office is open seven days a week and is committed to using only materials that are harmless for people and the environment, for instance no amalgam or substances containing formaldehyde.

Whether all patients consider their visit a joyful, pleasant experience remains open, but the success of and tremendous demand for this dental practice has confirmed the vision of its founder. KU 64 represents a different kind of dentist visit than we have been used to in the past – not just medical treatment but wellness for the whole person.

Segueing into another example: “Ryana ir is serious about standing-room seats on flights” was the

Segueing into another example: “Ryanair is serious about standing-room seats on flights” was the title of an article in the Neue Zürcher Zeitung on 2 July 2010. Ryanair is another pioneer in service innovation. The goal of the company is to offer air travel as cheaply as possible. The fundamental principle is in fact the exact opposite of that of KU 64. Whereas the Berlin dentist office’s approach is “What can we additionally offer to appeal to the patient even more?”, at Ryanair, the question is “What can we eliminate to make flying even cheaper?”

The idea of removing the passenger’s seat in exchange for a lower ticket price only initially seems absurd. It originates from a logic based not on creating a positive experience but on a completely rational cost-benefit analysis: One doesn’t fly Ryanair to enjoy oneself but to reach a destination as quickly and cheaply as possible.

The philosophies behind these two service concepts could not be more different, but the event-focused dental concept and the bare-bones flight services from A to B are both highly successful. Apparently the success of a strategy does ot rely on the “idea” behind it alone, but also on how it is deployed.

Can the automotive industry learn something about service from these two examples?

Like a visit to the dentist and in contrast to buying a new or used car, a trip to the workshop is not necessarily associated with positive emotions. At the end

one receives one’s car back, which either drives like it did before or like a regular car once again. Neither maintenance nor repair is a truly enjoyable experience. Thus there are only two approaches for satisfying customers:

either impart an additional emotional value to visiting the workshop or reduce the process to its most basic, i.e. simple maintenance at a low price.

These two approaches have not been carried to their logical conclusion in the automotive industry. Instead, today’s service formats operate in a kind of grey area between tersely friendly customer service and supposedly clever discounters without any substantial price advantage.

Automobile service as an experience involves more than a quick chat, the obligatory cup of coffee from the machine and a competent customer service agent. Automobile service as an event would mean that in the end, the customer would have a nicer, more comfortable car than before and would be pampered in an atmosphere of luxury and convenience.

Discount automobile service in turn is more than a shop with bargain- basement design and fixed prices. Discount automobile service would mean that costs are systematically saved along the entire process and the price is at least 50% less than the competition.

How will the automobile service world look in ten or twenty years? The event experience on one hand and discounters on the other? Who will operate these kinds of shops? Who are the pioneers who will initiate this change? Who will not survive this transition?

Perhaps the turning point in automobile service will be much more extreme than we can imagine today. Conventional service formats and concepts may have to be fundamentally reconsidered and reshaped in light of these trends and challenges. Following many years of evolutionary development, perhaps automobile service is in fact facing its first real revolution.

2.

Situation and development trends in the automotive service market

2.1 The service industry is reaching the limits of growth

If one considers how the service market has developed over a relatively long period of time, it is easy to see that turnover in the service industry is reaching its limits of growth. The service market has been at a nearly constant level since 2003 with only minor fluctuations up and down (Figure 1) Whereas sales in the service market were EUR 34.8 billion in 2003, following a record year in 2008 (EUR 35.5 billion) they fell to only EUR 34.5 billion in 2009. This development is in sharp contrast to the growth of the service market in past decades.

Wartung Maintenance Repair (wear parts) Reparatur (Verschleißteile) Unfallinstandsetzung Accident repair 40 35.5
Wartung Maintenance
Repair (wear parts)
Reparatur (Verschleißteile)
Unfallinstandsetzung Accident repair
40
35.5
34.8
34.8
34.5
34.1
34.5
35
33.2
33.4
30.8
31.1
30.9
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30.2
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20
15
10
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Service volumes in billion euros

Figure 1:

Service market volumes (incl. replacement parts)

Source: DAT/ZDK/Institut für Automobilwirtschaft 2010

This comes as no surprise, considering that the number of orders in the industry has decreased significantly since 2003 from 91.6 million to 74.5 million, a decrease of 18.7% (Figure 2).

95 90 85 80 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
95 90 85 80 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
95
90
85
80
75
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Figure 2:
Development in maintenance and repair orders (in
millions)

Source: DAT Report 2010

Looking at the individual sub-segments, it is evident that the fields of maintenance and repair work were equally affected by this. The average number of maintenance events per vehicle and year decreased in the period from 2003 to 2009 from 1.08 to 0.87 (-19.4%). At the same time, the cost per maintenance event increased only slightly during the same period from EUR 215 to EUR 228 (Figure 3). Overall, this means a significant decline in turnover generated in the maintenance business.

In EUR

400 1.4 1,4 Wartungsaufwand Maintenance costs Wartungshäufigkeit Maintenance frequency 350 1.2 1,2 300 1.0 1,0
400
1.4 1,4
Wartungsaufwand
Maintenance costs
Wartungshäufigkeit
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350
1.2 1,2
300
1.0 1,0
250
0.8 0,8
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0.6 0,6
150
0.4 0,4
100
0.2 0,2
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0
0.0 0,0
Figure 3:
Cost per maintenance event and maintenance frequency
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Source: DAT Report 2010

The development of the repair business is similar, where the number of repair events per vehicle and year decreased from 0.86 in 2003 to 0.62 in 2009 (-27.9%). The cost per repair has also gone down in this segment, from EUR 185 in 2003 to only EUR 172 in 2009, a decrease of 7.0% (Figure 4).

2004
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In EUR

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1992 1993 2006 1996 2001 In EUR 350 300 250 200 150 100 50 Reparaturaufwand Repair

Reparaturaufwand

Repair costs

EUR 350 300 250 200 150 100 50 Reparaturaufwand Repair costs Reparaturhäufigkeit Repair frequency 1.2 1,2

Reparaturhäufigkeit

Repair frequency

Repair costs Reparaturhäufigkeit Repair frequency 1.2 1,2 1.0 1 0.8 0,8 0.6 0,6 0.4 0,4 0.2

1.2 1,2

1.0 1

0.8 0,8

0.6 0,6

0.4 0,4

0.2 0,2

0 0.0 0
0
0.0 0

Figure 4:

Cost per repair event and repair frequency

Source: DAT Report 2010

The reasons for the declining development of maintenance and repair events are well-documented: longer maintenance intervals, improved vehicle quality and fewer kilometres being driven mean car owners do not have to visit the workshop as often. Another factor is a growing sensitivity to the cost of ownership, which has also led to a reduction in the frequency of taking the vehicle to the shop. Many drivers avoid what they subjectively see as unnecessary maintenance and repairs in order to reduce operating costs.

2.2 Increasing workshop rates and parts prices

The fact that the decline in maintenance and repair work has not impacted turnover more strongly up to now primarily has to do with the increasing prices for repair shop work and replacement parts. The price index of the German Federal Statistical Office shows a 25% increase in prices for maintenance and repair work between 2000 and 2009. This figure is

significantly higher than the increase in general consumer prices, which only went up by 15.9% in the same time frame. Shop price increase in the first six months of 2010 also outpaced consumer price growth compared to the same period in the previous year (3.3% vs. 1.3%) (Figure 5).

128 127.9 125.1 126 124 122 120.9 120 117.9 118 118.6 116 113.3 114 111.2
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1. Hj
of 2010 2010
Wartungs-MaintenanceundandReparaturarbeitenrepair work
ConsumerVerbraucherpreis-Indexprice index
2000 index = 100

Figure 5:

Development in prices for maintenance and repair work

Source: Institut für Automobilwirtschaft (IFA)/Destatis

The situation is similar for prices for replacement parts and accessories (Figure 6): Following a modest increase in the years 2000 to 2005, from 2006 to 2009 replacement part prices increased significantly more than overall consumer prices (+12.8% vs. +9.5%). This trend continued in the first half of 2010, when replacement part prices increased much more quickly (2.3%) compared to the same period in the previous year than consumer prices, which increased 1.3% as previously mentioned.

120 118.6 118 115.9 116 115.4 117.4 114 112.5 114.5 112 110.0 112.0 110 108.3
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2005
2006
2007
2008
2009
1. Hj 2010
of 2010
ConsumerVerbraucherpreis-Indexprice index
ReplacementErsatzteile undpartsZubehörand accessories
Index 2000 = 100

Figure 6:

Development in prices for replacement parts and accessories

Source: Institut für Automobilwirtschaft (IFA)

Whether this above-average growth in shop prices will continue is questionable. Apparently in the past, shops not only passed on increasing costs, especially personnel expenses, to their customers, but also attempted to drive profits by raising prices. In light of the stagnation of real income and increases in other vehicle operating costs, car owners are likely to be less and less accepting of this pricing policy.

2.3 Competitive situation: from “peaceful coexistence” to “predatory competition”

In growing markets, companies can still expand despite losing market share. In stagnating markets, growth is only possible by eliminating the competition. As the growth curve in the service business flattens out, the scenario of “predatory competition” is increasingly becoming a reality.

Both the weakening market development and the continuing large number of service providers have intensified the competitive situation in the service business. Car manufacturers and importers have tried to adjust not only the number of their dealers but also the size of their service networks, with only partial success. The attempts by automobile manufacturers and importers to consolidate were countered by the liberalisation of the authorised service market by the Block Exemption Regulation, according to which essentially only a "qualitative selection" in service is possible (BER 1400/2002). Many former authorised dealers took advantage of this opportunity to remain in the network of their manufacturer. Other authorised dealers have added additional service brands to their portfolio, while many independent shops have become authorised as service partners for one or more brands. Overall the number of authorised service providers increased 4.3% between 2005 and 2010 to reach the level of 25,626 establishments (Figure 7). This mainly resulted from the increase in pure service establishments from 9,324 in 2005 to 11,785 in 2010 (+26.4%). An even larger increase was observed in the number of branch shops, which tripled in the same period of time. The only decrease occurred in the number of primary and secondary dealers, which fell from about 15,000 in 2005 to 13,362 at the beginning of this year (-

11.4%)

Number of

     

establishments

2005

2010

Change in %

Primary and secondary dealers Branch shops Service shops

15,087

13,362

-11.4

156

479

+207.1

9,324

11,785

+26.4

Total

24,567

25,626

+4.3

Figure 7:

Authorised service establishments

Source: Institut für Automobilwirtschaft (IFA)

The number of independent suppliers has remained nearly constant since 2005 at just over 20,000. However there is a strong trend towards expansion amongst workshop chains and workshop systems. Not only has the number of shop systems itself risen strongly, but also the number of associated establishments. To reach the “critical mass” necessary for survival, most shop systems plan to further expand their networks (Figure 8).

Number

2,500 2.500 2,200 1,800 2,000 2.000 1,500 1,500 1.500 1,100 800 1,000 1.000 500 0
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500
0
2006
2007
2008
2009
2010

Figure 8:

Development in workshop systems

Source: Automobilwirtschaft 1/2009

The competitive situation has also intensified as a result of new strategies amongst both authorised and independent suppliers. Whereas in the past a

more or less “peaceful coexistence” was the norm, where the authorised workshops focused on newer cars and the independent shops on older cars, in recent years automobile manufacturers and their authorised shops have increasingly attempted to penetrate segments II and III, in particular through customer loyalty programmes such as flat-rates that bind owners to a specific shop for up to four years. But car manufacturers have also become more flexible in parts pricing, at times going so far as to establish a second range of more cost-effective parts (Figure 9).

Brand

Name of 2nd parts range

Available

Cost savings

Product groups

since

Citroën

EUROREPAR

2006

Approx. 25%

Primarily wear parts

Ford

Motorcraft

The 1980‘s

20-30%

All wear parts

Hyundai

Uni Fit

2006

Approx. 35%

Wear parts

Kia

Unifit Parts

July 2009

Approx. 20%

Wear parts

Renault

MOTRIO

1999

Approx. 30%

Typical wear parts

Toyota

OPTIFIT

Approx. 2000

Approx. 25%

Key maintenance components and high-priced replacement parts

Figure 9:

2 nd parts range of selected car manufacturers

Source: AUTOHAUS 13/2009

Independent suppliers are also increasingly trying to expand into the newer car segment. They do this by enhancing their existing locations and offering an expanded range of services oriented toward those of the authorised shops (e.g., providing replacement vehicles, financing repairs), and in some cases even by selling cars and offering their own flat-rates (Figure 10).

Figure 10: Customer loyalty st rategies of independent service providers using the example of ATU

Figure 10:

Customer loyalty strategies of independent service providers using the example of ATU

Source: ATU 2009

If one considers the individual vehicle age segments in the maintenance and repair market, it is apparent that automobile manufacturers and their authorised shops have succeeded in increasing their market share since 2005 in nearly all sub-segments (Figure 11). Only in segment IV, i.e. vehicles that are 8 or more years old, has the market share for authorised shops decreased.

- Share in % -

Authorised shops

Other shops

2005

2009

2005

2009

Under 2 years

90

91

7

4

2-4 years

82

86

11

12

4-6 years

63

77

24

17

6-8 years

60

71

28

25

More than 8 years

33

29

46

55

Total

55

53

30

37

Figure 11:

Performance of maintenance and repair work according to vehicle age

Source: Institut für Automobilwirtschaft (IFA)

Interestingly, the importance of this segment in particular has grown in recent years. Consequently, independent shops have increased their overall market

share over the course of the past decade. Their share of the maintenance and repair market between 2003 and 2009 for example increased from 23% to 36%. At the same time, the market share of authorised shops decreased from 61% in 2002 to 53% in 2009 (Fig 12).

60% 50% 40% 30% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
60%
50%
40%
30%
20%
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VertragswerkstattAuthorised shops ofderowneigenenmanufacturerMarke
sonstigeOther automotiveKfz-Werkstattshops
Figure 12:
Market share of maintenance and repair work

Source: DAT Report 2010

Increasing competition in the parts business also plays a significant role in the competitive situation of the aftersales market. The German market for wholesale parts is considered to be “over-distributed”, which means that there tend to be too many parts wholesalers competing with one another for the size of the German market.

This situation has tended to intensify in recent years rather than weaken, due to greater activity on the part of car manufacturers in supplying non- authorised dealers and to the activities of large groups of dealers, which have increasingly entered the parts market (Figure 13). Correspondingly, a significant consolidation is expected in wholesale parts in the coming years.

Figure 13: Automotive dealer gr oups as wholesale parts suppliers using the example of the

Figure 13:

Automotive dealer groups as wholesale parts suppliers using the example of the Dello Group from Hamburg

Source: Dello 2010

2.4 Dealer satisfaction in aftersales business

According to data from the Schwacke "Brand Monitor" conducted by the Institut für Automobilwirtschaft (IFA), satisfaction of German car dealers with their manufacturers in the aftersales business has increased in recent years. Whereas in 2009 car dealers rated their satisfaction with manufacturers in the aftersales field as 2.93 (German school marking system, scale from 1-6, 1 being the highest), this score increased in the survey conducted at the beginning of this year to 2.87. The survey included 1,059 authorised dealers in Germany.

This development conveys the growing relevance of aftersales for automobile manufacturers: apparently the support provided to dealers by manufacturers in this area is increasing. Automobile dealers are more satisfied in particular

with the support provided to better utilise shop capacity, with a score of 3.17 in 2010 compared to that of 3.28 in 2009. Nonetheless, this appears to be a trouble spot for dealers as evidenced by the overall below-average satisfaction with this factor (Figure 14).

1 = very satisfied, 6 = unsatisfied

2005

2006

2007

2008

2009

2010

Prices for parts threatened by competition

3.20

3.10

3.10

3.19

3.13

3.03

Margin bonus system for parts and accessories

3.10

2.90

3.00

3.04

3.03

2.90

Manufacturer delivery system for parts and accessories

2.50

2.30

2.50

2.40

2.34

2.37

Support from manufacturer to better utilise shop capacity

3.40

3.40

3.40

3.39

3.28

3.17

Handling of warranty claims and goodwill repairs for new cars

2.80

2.80

2.90

2.86

2.93

2.91

Average satisfaction in the aftersales domain

2.99

2.89

2.97

2.96

2.93

2.87

Average satisfaction overall

2.93

2.87

2.91

2.90

2.83

2.77

Figure 14:

Satisfaction with the car manufacturer or importer in the aftersales domain

Source: Schwacke MarkenMonitor 2010

Satisfaction of authorised dealers is also below-average when it comes to manufacturer pricing for parts threatened by competition. This is apparently another critical issue for authorised dealers competing with independent service suppliers.

When ranked according to brand, Toyota dealers lead the top 10 list of satisfaction with manufacturers, but only just ahead of BMW dealers, whose score increased significantly in the past year. Positions 3 and 4 are held by Mercedes and Audi, two additional premium brands. The rear of the ranking is brought up by the two French manufacturers Peugeot and Renault (Figure

15).

Rank

Brand

2010

2009

 

1 Toyota

2.47

2.41

 

2 BMW

2.48

2.69

 

3 Mercedes

2.52

2.30

 

4 Audi

2.59

2.82

 

5 Skoda

2.64

2.89

 

6 Opel

2.65

2.55

 

7 Volkswagen

2.83

2.85

 

8 Ford

2.84

2.92

 

9 Peugeot

3.10

3.39

 

10 Renault

3.10

3.13

1 = very satisfied; 6 = unsatisfied

 

Figure 15:

Satisfaction with the car manufacturer or importer in the aftersales domain according to brand

Source: Schwacke MarkenMonitor 2010

Toyota partners are also the most satisfied with support in utilising shop capacity, another very important factor for authorised dealers. Mercedes comes in second place here, although satisfaction compared to the previous year has decreased significantly. BMW in contrast was able to increase the satisfaction of its dealers to reach third place.

Rank

Brand

2010

2009

 

1 Toyota

2.48

2.63

 

2 Mercedes

2.70

2.39

 

3 BMW

2.77

3.03

 

4 Skoda

2.89

3.30

 

5 Audi

2.97

3.26

 

6 Ford

3.00

2.83

 

7 Volkswagen

3.03

3.28

 

8 Opel

3.08

2.70

 

9 Peugeot

3.13

3.44

 

10 Renault

3.23

3.21

1 = very satisfied; 6 = unsatisfied

 

Figure 16:

Satisfaction with support in utilising shop capacity

Source: Schwacke MarkenMonitor 2010

2.5 Political framework: aftersales focus of BER

Block Exemption Regulation (BER) No. 1400/2002 provided new impetus to the aftermarket, if not to the extent which its authors in the EU Competition Commission had imagined. Many of the new regulations included in BER No. 1400/2002 had relatively little effect. For instance, authorised dealers have hardly made any use of subcontracting, which comes as no surprise considering the high profitability of the service business.

Nor were there any major shifts in market share in the parts business between car manufacturers and independent parts sellers. Car manufacturers have made certain compromises in the pricing for parts threatened by competition, while suppliers have not always completely tapped the opportunities arising from the new legal situation due to reasons of convenience.

BER No. 1400/2002 has had a significant impact on multi-brand service however. Because car manufacturers could only select qualitatively above 30% aftermarket share, authorised dealers in particular used the opportunity to add a second or third service brand to their portfolio. Economically this often made sense, because the barriers to entering the market are lower for brand-specific investments than for new car sales, and earnings in service are significantly higher than in parts trade, so that the initial investments could be quickly amortised. But the automobile manufacturers have also used the multi-brand service to a certain extent to close gaps in a service network.

The new BER No. 461/2010 in effect as of 1 June 2010 is not likely to cause major changes in the service business, as the regulations for the aftermarket remain practically unchanged. Undeniably positive for all players in the market is that this regulation is valid for a significantly longer period of time, providing for legal certainty and investment security through 2023.

The statements of the Commission members responsible for the regulation indicate that they will be closely monitoring compliance with the rules of competition and will intervene if they are violated. Aftersales remain an area critical to competition in the eyes of the EU Commission. This perspective is likely to tend to favour independent service providers, which can expect special protection. This without a doubt leaves less room for strategic manoeuvre for car manufacturers, although the importance of this factor for future competition in the aftermarket should not be overestimated.

2.6 Deceptive profit

The workshop and parts business is considered an especially profitable segment in the automotive market. After all, one-half to two-thirds of the total contribution margin 3 in the German automobile business was and continues to be generated in aftersales. With profits of 18.5% for workshops and 16.4% for parts and accessories, aftermarket sales were considerably more profitable than the +4.2% achieved in the new car business, even during 2009 at the high point of Germany’s scrapping premium program (Figure 17). Thanks to its cross-subsidisation of the vehicle business, aftersales contribute very significantly to the financial stability of many car dealerships.

Source of contribution margin (in %)

2009

2008

Contribution margin 3 of each department revenue (in %)

   

New cars

43.8

28.8

2009

2008

Used cars

0.8

4.9

New cars

4.2

2.7

Replacement parts / accessories

28.2

33.2

Used cars

0.2

0.9

Workshop

23.3

28.0

Replacement parts / accessories

16.4

15.7

Other departments

3.9

5.1

Workshop

18.5

17.7

Total contribution margin 3

100.0

100.0

Figure 17:

Profit structure in the manufacturer-authorised business

Source: Rath, Anders, Dr. Wanner & Partner 2010

But the outstanding profitability in aftersales should not conceal the fact that it is based on a single, precarious source: the oil business. According to the Institut für Automobilwirtschaft (IFA), some 50% of profit in the aftersales market depends on the oil business. This corresponds to approximately 15% of the total profit of a car dealership.

It is natural that many drivers are sensitive to price-based advertising for oil. According to data from the IFA Institute, the price that private customers are willing to pay for an oil change today is EUR 36.35, well below typical shop prices at authorised service providers.

2.7 Interim conclusion I: Automobile service – from the cornerstone of profits to Achilles heel?

Can and will automobile service in its current form secure the economic viability of today’s market players in the medium and long range, as it has for decades?

The automobile service market in Germany is facing a decline which is not reversible, in light of the largely saturated automobile market. This is a historically new situation for all those involved, who up to now could expect continuously increasing sales volumes. But now the development is reversing: all signs point to contraction, not expansion.

This raises a number of other questions. Authorised dealers rely on high profitability in aftersales to compensate for insufficient returns on new and used vehicles. This is about to change. But will the automobile business really be able to achieve such high profits in the future that the pressure on aftersales business will be lessened? Do authorised dealerships need a new business model not only for the new car market but also for the service business?

In this situation of contraction, things are equally as dramatic for independent service providers. Will the classic independent establishments be able to survive independently as cross-brand all-rounders, or will they have to affiliate with a workshop system? Can they afford the investments in technical equipment and human resources necessary to remain at the cutting edge of technological development? And will the workshop chains and fast fitters be able to secure the medium and long-term “critical network size” necessary for their survival in a declining market, or will they also have to consolidate? And are they even capable of consolidation?

Considering the still comfortable margins in aftersales, the strain will undoubtedly be less here than in new and used car sales. But this could dramatically change in the coming years under the influence of various technological, economic and societal factors. Is the aftersales business facing a major turning point?

3. A turning point in aftersales – eight trends characterise the market of the future

3.1 Trend I: The service market will develop negatively

Purely mathematically speaking, the development of the service market is determined by two factors:

The number of existing passenger and estate cars and

The annual maintenance and repair demand per vehicle.

Increases in hourly rates and prices for replacement parts must also be taken into consideration.

The Institut für Automobilwirtschaft (IFA) has been generating predictions for the German service market based on these factors for many years now. Their data come from the statistics of the German Federal Department of Motor Vehicles (KBA), the DAT report and their own model for calculating the annual maintenance and repair demand per vehicle. These two figures are estimated taking into consideration relevant economic and technical factors, whereby two scenarios each are developed, an “aggressive” and a “conservative” model.

According to the 2010 IFA prediction, the service market potential based on sold hours for maintenance and repair work will decrease by 19.6% to 25.2% by the year 2025, depending on the scenario (Figure 18). This results from a stagnating number of existing cars accompanied by an additional decline in demand for maintenance and repairs per vehicle and year.

How strong this serious decline in turnover in the aftersales business will be depends, as mentioned above, on how hourly rates and parts prices change. Considering the growing intensity of competition and the increasing price sensitivity of drivers, the potential for increasing prices in the aftermarket is expected to be relatively small. Given the assumptions described here, service market sales are anticipated to decrease by 6.3% to 13.2% by the year 2025. Both scenarios presume an additional but moderate increase in hourly rates.

Assumptionand results of the prediction

Jahr

Number of existing cars 1 (in millions)

Annual repair and maintenance demand per car (hrs.)

Total potential for repair and maintenance work 2 (mill. hrs.)

Average hourly rate(€)

Market potential for market sales 2 (mill. €)

2000

 

42.8

   

4.2

   

179.76

 

57.99

10,424

2001

 

43.8

   

4.2

   

183.96

 

58.04

10,677

2002

 

44.4

   

4.2

   

186.48

 

58.79

10,963

2003

 

44.7

   

4.3

   

192.21

 

60.00

11,533

2004

 

45.0

   

4.3

   

193.50

 

61.00

11,804

2005

 

45.4

   

4.2

   

192.50

 

62.04

11,942

2006

 

46.1

   

4.1

   

190.85

 

64.78

12,364

2007

 

46.6

   

4.0

   

188.26

 

65.03

12,243

2008

 

46.6

   

3.9

   

183.60

 

65.75

12,072

2009

 

46.7

   

3.8

   

177.93

 

64.35

11,450

Prediction

Conservative

Aggressive

Conservative

Aggressive

Conservative

Aggressive

Conservative

Aggressive

Conservative

Aggressive

model

model

model

model

model

model

model

model

model

model

2015

47.7

mill.

48.8

mill.

3.2

h

3.3

h

152.6

mill. h

158.4

mill. h

€ 68.39

€ 68.58

€ 10,438 mill.

€ 10,865 mill.

2020

48.1

mill.

50.1

mill.

2.9

h

3.0

h

139.5

mill. h

148.8

mill. h

€ 71.83

€ 72.05

€ 10,020 mill.

€ 10,721 mill.

2025

48.4

mill.

50.4

mill.

2.7

h

2.8

h

133.1

mill. h

143.1

mill. h

€ 74.70

€ 74.95

€ 9,939 mill.

€ 10,728 mill.

1)

Existing cars incl. temporarily deregistered vehicles

2)

Only maintenance and repair, no body/paint work, no warranty/guarantee/goodwill work, without VAT, without sales of parts and accessories

Service market prediction (hours)

205 Defensiv-Szenario Conservative scenario 195 Offensiv-SzenarioAggressive scenario 185 175 165 155 145 135
205
Defensiv-Szenario
Conservative scenario
195
Offensiv-SzenarioAggressive scenario
185
175
165
155
145
135
125
Gesamtmarkt für Reparatur‐ und
Total market for repairs and
Wartungsarbeiten in Mio. Stunden
maintenance in mill. hours
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

Service market prediction (wage hours in €)

13.000 12.500 Conservative Defensiv-Szenario scenario Offensiv-Szenario Aggressive scenario 12.000 11.500 11.000
13.000
12.500
Conservative Defensiv-Szenario scenario
Offensiv-Szenario
Aggressive scenario
12.000
11.500
11.000
10.500
10.000
9.500
Figure 18:
IFA prediction for the service market
Gesamtmarkt für Reparatur- und
Total market for repairs and
maintenance in mill. €
Wartungsarbeiten in Mio. €
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

Source: Institut für Automobilwirtschaft (IFA)

Analogous to the development in the new car market, the declining aftersales market brings with it the risk of discount wars as well. The first signs of this are already manifesting themselves (Figure 19). The range of aftersales products and services however is more diverse than in the new vehicle market, where primarily standardised products are sold. Moreover, soft factors such as trust, friendliness and expertise also play an important role for customers when visiting the workshop. In this respect, discount wars can be at least partially avoided through individual customer service.

Figure 19: Discount mania in aftersales Source: Institut für Automobilwirtschaft (IFA) 29
Figure 19: Discount mania in aftersales Source: Institut für Automobilwirtschaft (IFA) 29
Figure 19: Discount mania in aftersales Source: Institut für Automobilwirtschaft (IFA) 29

Figure 19:

Discount mania in aftersales

Source: Institut für Automobilwirtschaft (IFA)

3.2 Trend II: Older vehicles continue to gain in importance

The average age of existing vehicles in Germany has decreased following junking of some 2 million cars in 2009 as part of a federal scrapping program. The average age of scrapped cars was 14.4 years, according to an analysis from the German Federal Office of Economics and Export Control (BAFA). As shown in Figure 20, 10-year-old cars in particular were scrapped, but relatively large decreases in 13, 17 and 18-year-old cars are also apparent.

3500000

3000000

2500000

2000000

1500000

1000000

500000

0

3500000 3000000 2500000 2000000 1500000 1000000 500000 0 >30 29 28 27 26 25 24 23

>30 29

28

27

26

25

24

23

22

21

20

19

18

17

16 15 2010
16
15
2010

14

13

12

11

10

9

8

7

6

5

4

3

2

1

 
  2009  

2009

 

Figure 20:

Effects of scrapping premiums on the structure of existing cars in Germany

Source: KBA/Institut für Automobilwirtschaft (IFA)

While the trend towards longer retention and usage will continue in the coming years, it will be at a significantly lower level than before 2009. The scrapping premiums in Germany caused an estimated loss of 700 million euros in service sales.

In other words, the long-term trend toward longer vehicle retention and usage has merely been interrupted by the scrapping premium program, not stopped. Further improvements in vehicle quality and fewer kilometres being

driven mean that age segment IV (cars older than 11 years) will significantly increase in the future. Already today, cars older than 11 years account for one-third of existing vehicles (Figure 21).

2001 2003 2006 2009 Segment I: ≤ 4 years 14.22 mill. 13.44 12.8 mill. 13.78
2001
2003
2006
2009
Segment I: ≤ 4 years
14.22
mill.
13.44
12.8
mill.
13.78
mill.
mill.
Segment II: 5 – 7 years
9.32
mill.
9.30
mill.
9.84
mill.
9.01 mill.
Segment III: 8 – 10 years
9.25
mill.
8.05 mill.
8.92 mill.
8.07 mill.
Segment IV: >11 years
mill.
13.33
mill.
15.05 mill.
11.0
15.83
mill.

Figure shows existing cars in individual age segments as of 1 January of the year in question Existing cars incl. temporarily deregistered vehicles

Figure 21:

Age structure of existing vehicles in Germany

Source: KBA/Institut für Automobilwirtschaft (IFA)

This development poses both opportunities and risks for service suppliers:

The opportunity lies in providing not only services to improve the functionality and reliability of older vehicles but also to retrofit and modernise individual technical components.

The risk in this development is that customers will migrate to the do-it- yourself segment, which normally means the permanent loss of the customer.

In light of anticipated medium and long-range stagnation in new car sales, the aftersales market must definitely focus more on existing cars in the future, whereby competition for segments II and III in particular is likely to be fierce amongst authorised and independent service providers alike.

3.3 Trend III: Internet exchanges direct customer flows

The internet will take on a greater role in information and thus customer acquisition in the future. It can be expected that drivers will increasingly use the internet to find a shop not only for buying parts and accessories but also

for upcoming maintenance or unexpected repairs. Price comparison will play a particularly important role.

Four fundamental business models for repair exchanges can be distinguished today:

Pure directories of workshops

Repair job descriptions from customers and offers from shops

Auctions for the most inexpensive shop offer (reverse auction)

Combinations of the first three models.

Figure 22 gives an overview of various repair exchanges and their respective business models.

Name, address

Business model

Costs

Job descriptions for repairing cars

Currently still free for private persons and

in accidents

workshops, but base fees and

commissions (for bidders and customers)

have been announced for the future.

Job descriptions for all types of car

Driver enquiries free.

repair

5 service packages for workshops ranging

from EUR 4.90 to EUR 99.00 per month +

potential additional costs for enquiries, text

message service and commission. Free

test for first 4 weeks.

Workshop finder (address

Free for private users.

database)

Free for workshops for 2 months, thereafter

fee required according to current price list.

+

services finder (advertised fixed

price offers)

+

customer job descriptions for all

types of repairs

eBay Motors

Workshop finder (address

Free for searchers, listing shops in shop

database)

finder also free.

+

services finder (advertised fixed

price offers)

Workshop finder (address

Free

database)

Workshop finder (address

Free

database)

reparaturFUXX

Workshop finder (address

Free for drivers.

database)

For workshops: shop finder only is free,

otherwise various packages for full use for

+

services finder (advertised fixed

EUR 5.00, EUR 2.90 or EUR 78.90.

price offers)

 

+ customer job descriptions for all

 

types of repairs (reverse auction)

Reverse auction

Job posters: completely free.

Service providers: (e.g. automotive shops)

package prices from EUR 149.70 to EUR

299.70 per quarter for access + fees of

EUR 2-4% when job awarded.

Reverse auction

Job posters: completely free.

Service providers: three packages for EUR

9.99, EUR 24.99 or EUR 39.99 (all net

prices), no additional fees.

Search engine for websites

Free

Figure 22:

Selected online workshop exchanges

Source: Institut für Automobilwirtschaft (IFA)

Purchasing a shop service is of course much more complex than buying a new or used car. But offers for standard repairs and maintenance in particular can be easily compared. Internet users will focus on this domain accordingly.

Case study: Autoreparaturen.de

The workshop search portal autoreparaturen.de went online in 2008. The goal of portal founder Sebastian Cyran was not to offer just a simple list of addresses of all workshops in Germany, but to create an intelligent machine to connect shops and potential customers. Today, more than 2,000 workshops and over 10,000 car owners use this service, according to the company.

Shop enquiries from drivers are generally free of charge. Customers can describe the required services for their cars and upload up to two pictures. All enquiries are forwarded to shops within a radius of 5 to max. 40 kilometres from the driver’s place of residence. A few days or sometimes even just hours later, the local shops contact the driver with their estimates. After sending a shop enquiry, every driver receives a free account in the

www.autoreparaturen.de search portal, where estimates and messages from the shops can be read and managed. This information is also sent via email and text message.

The fee-based account for car workshops has a number of advantages. Their user account gives shops their own internet site where they can present themselves and their services online. The account is easy to use, as incoming enquiries can be managed without additional work. Before deciding on a membership, workshops can test an account at autoreparaturen.de for at least four weeks for free.

3.4 Trend IV: Intermediaries will change the market structure

The structural shift in the new vehicle business away from private customers towards commercial customers also has implications for aftersales. Significantly more cars have been registered in recent years by fleet management and leasing companies as well as car rental companies. They typically own large fleets of vehicles which they acquire, manage and direct, often on behalf of customers. These companies act as intermediaries between end consumers/users and the workshop. In other words, they not only decide who gets how many repair jobs, but also under what conditions. The former B2C business of aftersales is thus increasingly becoming a B2B business.

The power of the intermediaries is apparent in a highly attractive aftermarket sub-segment where authorised dealers have suffered severe losses: the accident repair business. Their market share in this once highly lucrative market segment has fallen from 62% in 2000 to currently only 52% (Figure 23). The share of independent service providers increased over the same period of time from 27% to 43%.

70% 60% 50% 40% 30% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008
70%
60%
50%
40%
30%
20%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
AuthorisedVertragswerkstattshops ofderowneigenenmanufacturerMarke
OthersonstigeautomotiveKfz-Werkstattshops
Figure 23:
Market share in the accident repair business

Source: DAT Report 2010

The reason for this is the “active claims management” of automobile insurers. Despite counter-strategies by the car manufacturers, significant volumes of auto body and paint work have apparently been “directed away” from authorised shops.

The classic intermediaries such as leasing and fleet management companies typically work with a selected network of shops or shop chains based on framework contracts. In addition to general maintenance and repair work, tyres and glass are special areas of emphasis here. The customer discount for using the service card of an intermediary is on the order of 10%-15%.

Intermediaries exert pressure not only on workshops but on car manufacturers and aftermarket suppliers as well. For the manufacturers, this affects primarily the parts business.

Case study: Service management at LeasePlan

LeasePlan works with a network of manufacturer-authorised shops for maintenance and repair, with which special hourly rates and replacement parts prices have been arranged. LeasePlan claims that their customers can reduce their maintenance costs by up to 10%.

LeasePlan also cooperates with selected tyre partners, which grant LeasePlan customers special conditions. Preferred tyre brands include Michelin, Goodyear, Dunlop and Bridgestone.

Finally, LeasePlan maintains a network of workshops for dealing with accident damage. The centralised repairs save customers an average of 15%, says LeasePlan.

repairs save customers an average of 15%, says LeasePlan. Figure 24: Fleet service using the example

Figure 24:

Fleet service using the example of LeasePlan

Source: LeasePlan 2010

Another important factor that will increase the future significance of intermediaries in automobile service are changes in the mobility behaviour of people in Germany. The automobile will retain its key relevance for individual mobility, but the usage patterns and profiles will be different than in the past.

Increasing urbanisation is a key driver of mobility behaviour. A persistent trend towards urbanisation can be observed in Germany: whereas the

population in large cities grew by nearly 3% between 1999 and 2008, the overall German population decreased slightly during the same time period.

A growing number of people are saying that they want to change their

mobility behaviour. 29% of participants in a 2009 survey stated the desire to do without at least one vehicle in the household. The share of persons in the city who said this (31%) was noticeably greater than in the country (26%).

It is also very apparent that younger people are more likely to do without a

car than older people. In the same survey, 35% of 18- to 34-year-olds reported doing without a car, while this figure was only 27% in the age group of 35- to 54-year-olds.

The main reasons cited for doing without a car are economic aspects (88%). Ecological reasons play a role for 46% of those who want to do without a car, including an above-average number of younger people (Figure 25).

 

All

 

Age group

Place of residence

- in % -

respondents

18-34

35-54

Over age 55

City

Country

„I will do without a car or am considering it in the next 6-12 months”

29

35

27

24

31

26

Reasons:

           

Save money

88

90

90

77

87

89

Ecological reasons

46

50

46

30

41

52

Figure 25:

Doing without a car in Germany

Source: Europcar/Ipsos 2009

It comes as no surprise then that alternative usage concepts are gaining in

importance. The number of car sharing users for example has increased continuously in recent years – although this figure was admittedly low to begin with (Figure 26).

Car sharing members Car sharing vehicles As of 1 January of each year Car sharing
Car sharing members
Car sharing vehicles
As of 1 January of each year
Car sharing members
Car sharing vehicles

Figure 26:

Development of car sharing usage in Germany

Source: Bundesverband Car Sharing (BCS), 2009

But more and more commercial providers are now offering innovative mobility services, especially for inner-city transportation. One example is Deutsche Bahn (German Rail), which provides its train passengers with motorised mobility through its “Flinkster” car-sharing service. Likewise highly successful is the Car2Go mobility concept, currently being tested by Daimler in Ulm/Germany and Austin/Texas. If one assumes that innovative mobility concepts in urban areas will increase in importance, it will lead to a further shift of the customer structure away from classic private customers towards commercial customers, because the respective mobility providers take over the service. For workshops this will mean a loss of current customers, affecting all shop types, whether authorised or independent.

3.5 Trend V: Polarisation of customer segments

The strong increase in total cost of ownership (TCO) in recent years has led to growing price sensitivity amongst drivers. Price topped the list of criteria for selecting a workshop, cited by nearly 30% of respondents. Price was followed by other important criteria including quality and reliability of work as well as of parts (Figure 27).

Preisniveau Price 29.9 Qualität & Quality Zuverlässigkeit and reliability der Arbeiten of work 26.6 Quality
Preisniveau Price
29.9
Qualität & Quality Zuverlässigkeit and reliability der Arbeiten of work
26.6
Quality Qualität of der parts Teile/Originalteile / original parts
24.5
Örtliche Local proximity Nähe der of workshop Werkstatt
7.4
Schnelligkeit Speed der Reparaturen/Wartezeiten of repairs / waiting time
5.3
Quality Qualität of der advisement Beratung
1.7
Appointment Terminverfügbarkeit availability
1.4
Hours Öffnungszeiten of operation
0.5
Meeting Termineinhaltung deadlines
0.4
Sonstiges Other
2.3
0
5
10
15
20
25
30
in %
35
Figure 27:
Criteria for selecting a workshop

Source: puls Marktforschung GmbH/Deutsche Post AG 2010

The strong price sensitivity of customers tends to be a disadvantage for brand workshops, which continue to have a “high-price image”. For instance, drivers were asked to estimate the price of a service that costs EUR 500 at an authorised VW workshop. The results show that price perception depends strongly on the respective supplier (Figure 28).

The estimated price at German service provider ATU is nearly 18% below that of the VW shop, while that of independent establishments was even 25% lower. As mentioned, these are not actual prices but estimated ones that reflect the price image of various suppliers.

Question: A workshop service that costs EUR 500 at an authorised VW shop would cost this much in a …. shop, according to the car driver (index value / in €)

€ 500 € 675 € 491 € 478 € 442 € 411 € 375 135
€ 500
€ 675
€ 491
€ 478
€ 442
€ 411
€ 375
135
100
98
96
88
82
75
Independent
workshop

Figure 28:

Price perception of drivers depending on service provider

Source: ABH Aftersalesmonitor

But one should not be too quick to generalise from these average values, because the frequently cited phenomenon of “erosion of the mid-range” has long since reached the automobile service market without the relevant market players drawing the right conclusions. Authorised shops for instance continue to offer a largely uniform level of service for their customers, without considering whether certain services are even desired or whether other target groups might want an even greater level of service. Workshop systems and chains for their part attempt to upgrade their service programme without realising that they may lose a share of their customers as a result, especially the price-sensitive ones.

A McKinsey survey from 2008 identified five buyer groups with different requirements for automobile service:

Demanding drivers

Premium service users

Car enthusiasts

Value for money seekers and

Pragmatists.

A key characteristic differentiating these various groups is the significance of price (Figure 29).

Demanding Premium Car Enthusiasts Drivers Service Users Selection of shop is important -3 35 13
Demanding
Premium
Car Enthusiasts
Drivers
Service Users
Selection of shop is
important
-3
35
13
I love cars
38
3
37
A low price is important
-7
-33
2
Special customer
orientation is important
9
39
11
Local proximity of shop is
important
-22
3
-2
Have little time, doesn‘t
matter which shop
-62
20
22
-100
0
100
-50
0
50
-50
0

50

which shop -62 20 22 -100 0 100 -50 0 50 -50 0 50 Value-for- Money
which shop -62 20 22 -100 0 100 -50 0 50 -50 0 50 Value-for- Money

Value-for-

Money Seekers

 

16

-32

 

21

-37

-25

-50

Value-for- Money Seekers   16 -32   21 -37 -25 -50 0 6

0

6

Highest Value

50

  21 -37 -25 -50 0 6 Highest Value 50 Pragmatists -49 -42 8 -11 14

Pragmatists

-49 -42 8 -11 14 41
-49
-42
8
-11
14
41

-100

0

100

Lowest value

21 -37 -25 -50 0 6 Highest Value 50 Pragmatists -49 -42 8 -11 14 41

Figure 29:

Customer profiles in aftersales

Source: McKinsey CARE Initiative 2008

Automobile service in the future must accommodate these different customer requirements, meaning that new formats must be developed with clearly differentiated levels of service and convenience.

3.6 Trend VI: The connected car

The automotive system is increasingly becoming part of a larger, networked communication system, made up of numerous transmitters and receivers. The purpose of this networking is not only to support the driver in performing his driving functions in the way that the familiar advanced driver assistance systems do (proximity warning system, lane change assistant, parking assistants etc.), but also to help him to manage his personal and professional life tasks. This gives rise to a new form of connectivity in the sense of involving driver and vehicle in different services and functions (Figure 30).

House/Home Office/Workplace Control of home technology Monitoring functions at home Phone and e-mail
House/Home
Office/Workplace
Control of home technology
Monitoring functions at
home
Phone and e-mail
communications
Vehicle and fleet
management
OEM/OES/
Service partner/
Dealers
Road assistance
Internet
Infrastructure/Car2Car
Navigation/Traffic
information
Entertainment
Travel management
Emergency systems/
emergency call
Proximity warning system
Road surface

Figure 30:

Connectivity changes the IT structure in vehicles

Source: Institut für Automobilwirtschaft (IFA)

Achieving such connectivity requires the creation of an open electronic communication platform in the vehicle that enables the simple, secure administration and control of the pertinent data. Apart from this, the human machine interface (HMI) must be simple and intuitive for the driver.

An important trend for both automotive manufacturers and their suppliers is also becoming evident in the growing extent to which drivers are using such portable devices as mobile phones or PDAs in their vehicles. As far as the user is concerned, the advantage of such devices is not only that they offer a means of storing his personal data; they can also be updated more easily and less expensively than on-board systems.

Navigation systems are typical examples of this. Younger drivers, in particular, use smart phones for this function with navigation software, which can be downloaded from the internet free of charge in some cases. All that is needed in the vehicle is a holder for the device concerned. The separation of navigation device and vehicle facilitates continuous updating of the navigation software (and makes it less expensive). The navigation software can of course be enhanced by other functions, such as recommended service bases.

One consequence of this development is that automotive manufacturers lose control over the information and communication systems used in the vehicle as they have to establish an open communication platform in order to enable the integration of such portable devices into the on-board network. However, these external devices are also being used to store vehicle-related information concerning the state of the vehicle and possible fault situations in the vehicle, for example.

As far as aftersales business is concerned, this could lead to a situation in which service-relevant information migrates to the network operators for these portable terminal devices. This would mean that the results of the on- board diagnostics that are possible today would be available to third parties and could be used for customer management. Figure 31 shows a service process sequence that would be possible if service-relevant information is stored in a device rather than in the vehicle. The information that is relevant for maintenance and repairs would enable the driver's chosen workshop to plan and make arrangements for possible visits in advance, thereby reducing the parked-up time of the vehicles. If the automotive system were opened up, it would have the potential to reorganise the competitive situation in the aftersales sector and make it easier for new service providers to enter the market.

Authorised dealer Data stored in the vehicle Authorised workshop
Authorised dealer
Data stored in the
vehicle
Authorised
workshop
Authorised dealer Information stored in a device Recommended workshops
Authorised dealer
Information stored in
a device
Recommended
workshops

Figure 31:

Opening up the automotive system - consequences for customer management in the aftersales sector

Source: Institut für Automobilwirtschaft (IFA)

3.7 Trend VII: E-mobility

The challenge of substantially reducing global CO 2 emissions will continue to be at the top of the agenda of the political decision-makers. The introduction of binding CO 2 limits in 2012 will launch the first stage in the reduction of automotive CO 2 emissions. It will probably be possible to achieve the limit of 120 g/km CO 2 , which must be observed by the entire vehicle fleet by the year 2015 by means of further developed conventional powertrain technology. The limit of 90 g/km CO 2 targeted for 2020 is likely to require more extensive alternative drive concepts, however.

Apart from additional tax burdens for vehicles with high CO 2 emissions, restrictions on the use of such vehicles must be anticipated in the future as well. This could affect traffic in the areas of high population density in particular. This is another aspect that is contributing towards the growing

pressure on the automotive industry to introduce new drive concepts into the market.

Battery-powered electric vehicles will gain significance in the medium and long term in the light of the increasing eco-political requirements to be met by passenger vehicles. There is a good chance that the use of electric passenger vehicles will spread rapidly, particularly in areas of high population density where motorised individual transport imposes a high ecological burden and the system-related drawbacks of electric cars, i.e. their limited range, are not so important. Nevertheless, achievement of the German government's objective of having a million electric vehicles on Germany's roads by 2020 will very much depend on whether it will be possible to reduce the battery costs to a sustainable level.

The growing market penetration of electric cars has far-reaching consequences for the aftersales sector as purely battery-operated electric cars require a great deal less maintenance and repair. This is due to the fact that electric vehicles have around 90 percent fewer moving parts as vehicle with internal combustion engines. The proportion of repairs attributable to worn parts is also correspondingly low. While maintenance operations no longer include changing oil and air filters or spark plugs, there is more work involved in checking the power electronics. On the whole, however, a growing number of electric vehicles as a proportion of the total vehicle population will result in a diminishing volume of maintenance and repair work.

Case study: e-workshop service for the Tesla Roadster

One of the few series-produced electric cars is the Tesla Roadster, of which around 1000 vehicles have been sold worldwide so far. The Tesla Roadster is equipped with a rechargeable lithium ion battery, which weighs 450 kg, and has a range of around 500 km. A major service is due on the vehicle once a year or every 20,000 km and each one requires 6.5 hours of work. There is no need for the usual wear-related maintenance activities, which means that maintenance work is focused on the battery and the power electronics. A notebook with diagnostic software is used for this. Remote diagnosis is also possible if the vehicle data are transferred to the service base online.

Investments in the workshop are also reduced due to the discontinuation of many maintenance routines. No oil traps are needed, for example, and no exhaust gas extraction systems. Situated in the centre of Munich, the Tesla workshop merely requires a lifting platform, a tool trolley and a headlight beam adjustment device. Tesla works in cooperation with a network of body specialists, who repair any body damage.

a network of body specialists, who repair any body damage. Figure 32: Service at Tesla Motors

Figure 32:

Service at Tesla Motors

Source: Tesla 2010

The requirements profile for workshops and mechanics has changed with the advent of the electric cars. This particularly applies to the handling of high- voltage equipment as the voltage in an electric vehicle may be 400 V or more. This means that additional qualifications are needed for workshop personnel.

The growing importance of electric cars in the aftersales market is not only relevant in terms of the modified vehicle engineering, but also in terms of new business models, which could develop with the electric car. It is already obvious, for instance, that the electricity supply companies will become very deeply involved in the electric car business. We must assume that they will be offering complete packages, including aftersales service, and this would sever the direct links between the workshops and the end customer.

The business model centring on a charge scheme for vehicle use and battery replacement developed by Better Place would also thrust the workshops into the role of simple service providers for the operators of such systems.

Case study: RWE Mobility

RWE is one of the first electricity supply companies to market electric vehicles. The company offers an e-package that includes a quick charging station and an RWE automotive electricity agreement, as well as the vehicle. The vehicles are modified Fiat models, which RWE purchases through the general Micro-Vett importer for Germany. These vehicles cannot be purchased individually, but are only available as part of the package.

The vehicles are repaired and maintained by all Fiat dealers. RWE and Karabag are building up specialised knowledge of the electric motor and the battery within the service companies. The customer receives a statement of account for the charging station rental fee and an itemised bill for the supplies of green electricity.

Reliable service In virtually all cases, the vehicle can be repaired and maintained within the

Reliable service In virtually all cases, the vehicle can be repaired and maintained within the existing Fiat dealer network. RWE and Karabag are also building up the specialised knowledge required to service the electric motor and the battery within the service companies. The first specialised workshops are located in North-Rhine Westphalia, for example. The German automobile club ADAC is another partner in the NRW pilot project, which has trained its personnel to provide a reliable breakdown service for electric cars on the roads within the pilot region.

Figure 33:

RWE Mobility e-package with service promise

Source: RWE Mobility 2010

3.8 Trend VIII: Consolidation in the aftersales sector

The retrogressive development in the market and the structural changes in the aftersales business described above will lead to a noticeable consolidation with respect to the number of car workshops. A pronounced

increase in the number of insolvencies has already been evident in the car trade in recent years.

As shown in Figure 34, there has been a distinct increase in the number of insolvencies in the motor vehicle service and repair sector since 2007 and this figure is going to reach a new all-time high this year with an anticipated 480 business failures. This clearly emphasises the way in which economic manoeuvrability is gradually being constricted in the aftersales sector as well, and particularly in this area.

800 687 690 700 633 608 589 571 600 563 546 519 480 500 384
800
687
690
700
633
608
589
571
600
563
546
519
480
500
384
373
400
362
369
346
340
319
304
300
200
2002
2003
2004
2005
2006
2007
2008
2009
2010 *
* Forecast
Trading Handel m.Kraftwagen in motor vehicles
Instandhaltung Motor vehicle maintenance u.Rep.v.Kraftwagen and repair

Figure 34:

Insolvencies in the automotive trade between 2002 and

2010

Source: Destatis 2010/Institut für Automobilwirtschaft (IFA)

The average number of vehicles serviced by a workshop increased by 43.8 percent to 950 passenger and estate cars between 1997 and 2009. If we realistically assume that this trend will continue, i.e. that a workshop will be capable of maintaining and repairing an increasing number of vehicles by virtue of the technical developments, the number of car workshops will decline from 43,800 in 2009 to 32,850 in 2020 (Figure 35), corresponding to a reduction of over 25 percent.

Number of vehicles per workshop

Number of car workshops

Index

220

200

180

160

140

120

100

80

Index

110

100

90

80

70

60

50

Vehicles per Workshop

Number of car workshops
Number of car workshops

1997

2000

2005

2009

2015

2020

Figure 35:

Development of the car workshops in Germany

Source: Institut für Automobilwirtschaft (IFA)

3.9 Interim conclusion II: Trends in aftersales business - the winners and the losers

The trends described above are going to exert a lasting effect on the service market and constitute points of reference for strategies developed by the players in the market. Figure 36 summarises the relevance of the trends for the various market participants, whereby the directions of the arrows indicate a positive, negative or neutral evaluation with respect to their positions in the market.

 

Original

Authorised

Original

Parts

Workshop

Indepen-

Specia-

Equipment

workshop

Equipment

whole-

systems/

dent

lists

Manufacturer

Supplier

workshops

 

saler

chains

 

Trend I: The service market will develop negatively

 

 

Trend II: Older vehicles continue to gain in importance

 

   

 

Trend III: Internet exchanges direct customer flows

Trend IV: Intermediaries change the market structure