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A Turning Point

in Automotive Service

A study commissioned by Automechanika,


Messe Frankfurt Exhibition GmbH

Prof. Dr. Willi Diez

September 2010

Institut für Automobilwirtschaft (IFA)


at the Nürtingen–Geislingen University (HFWU)
http://www.ifa-info.de
This publication in its entirety is protected by copyright.
Any use beyond the strict limits of copyright law
without the permission of the author or publisher
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Table of contents

Summary of key results


1. Introduction: Innovative service worlds ................................................. 8
2. Situation and development trends in the automotive service market11
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


cornerstone of profits to Achilles heel? ................................25

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


winners and the losers ............................................................50

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


business ................................................................................................... 51
4.1 Objectives and methods .........................................................51

4.2 Development of aftersales business......................................53


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:

ƒ 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.

ƒ 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.

ƒ 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

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

ƒ 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.

ƒ 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.

ƒ 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.

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ƒ 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.

ƒ 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:

ƒ 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.
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ƒ 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.

ƒ 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:

ƒ 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.

ƒ The service discounter, whose systematic menu pricing appeals to


price-sensitive customers with a small mobility budget.

ƒ The service factory, offering standardised maintenance and repairs


with guaranteed quality to intermediaries via a largely internet-based
customer process.

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ƒ 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:

ƒ 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.

ƒ 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.

ƒ 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.

ƒ 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.

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ƒ 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.

ƒ 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.

ƒ 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.

ƒ 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
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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.

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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.

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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
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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.

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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.

Maintenance
Wartung Repair
Reparatur
(wear
(Verschleißteile)
parts) Accident
Unf repair
allinstandsetzung
40
35.5
34.8 34.5 34.8 34.1 34.5
35 33.2 33.4
29.8
30.8 30.2 30.4 30.9 31.1
Service volumes in billion euros

29.4
30

25

20

15

10

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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).

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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
Maintenance costs
Wartungsaufwand Maintenance frequency
Wartungshäufigkeit
350 1.2
1,2

300
1,0
1.0
250
0.8
0,8
200
0,6
0.6
150
0.4
0,4
100

50 0,2
0.2

0 0,0
0.0
1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Figure 3: Cost per maintenance event and maintenance frequency


Source: DAT Report 2010

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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).

In EUR

350 1.2
1,2
Reparaturaufwand
Repair costs Reparaturhäufigkeit
Repair f requency
300 1.0
1

250
0.8
0,8

200
0.6
0,6
150

0,4
0.4
100

0.2
0,2
50

0 0.0
0
1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
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
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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
126 125.1
124
122 120.9
120
117.9
2000 index = 100

118
116 118.6
113.3
114 111.2 115.9
115.4
112
109.1
110 112.5
108 106.8 110.0
104.7
106 108.3
104 102.1 106.2
104.5
102
102.0 103.4
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1st
1. half
Hj
of2010
2010
Maintenance
Wartungs- undand repair work
Reparaturarbeiten Verbraucherpreis-Index
Consumer price index

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
Index 2000 = 100

114.5
112
110.0
110 112.0
108.3
108 109.7
106.2
106 104.5
103,4 106.1
104
102,0
104.1
102 102.2 103.1 103.4
101.3
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1.1st
Hj half
2010
of 2010
Verbraucherpreis-Index
Consumer price index Ersatzteile und
Replacement Zubehör
parts and accessories

Figure 6: Development in prices for replacement parts and


accessories
Source: Institut für Automobilwirtschaft (IFA)

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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%)

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Number of
2005 2010 Change in %
establishments

Primary and
secondary dealers 15,087 13,362 -11.4
Branch shops 156 479 +207.1
Service shops 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
2.000 1,800
2,000
1,500
1.500
1,500
1,100
1,000
1.000 800

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

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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 Available Cost savings Product groups


parts range 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: 2nd 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).

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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
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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

Authorised shops of
Vertragswerkstatt derown manufacturer
eigenen Marke Other automotive
sonstige shops
Kfz-Werkstatt

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.

19
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

20
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
2.80 2.80 2.90 2.86 2.93 2.91
cars
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).

21
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.

22
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.

23
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.

24
Source of contribution margin (in %) 2009 2008 Contribution margin 3 of each
2009 2008
New cars 43.8 28.8 department revenue (in %)
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?
25
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:

¾ The number of existing passenger and estate cars and

¾ 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.
26
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.

Assumption and results of the prediction


Annual repair and Total potential for repair Market potential
Number of existing
Jahr maintenance demand and maintenance work2 Average hourly rate(€) for market sales2
cars 1 (in millions)
per car (hrs.) (mill. hrs.) (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

27
Service market prediction (hours)
205
Conservative
Def scenario
ensiv-Szenario

Wartungsarbeiten in Mio. Stunden
und 
195
Of
Aggressive
f ensiv-Szenario
scenario

Total market for repairs and


maintenance in mill. hours
Gesamtmarkt für Reparatur‐
185

175

165

155

145

135

125
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
repairs andund

12.500 Conservative scenario


Defensiv-Szenario
forReparatur-

Aggressive
Of scenario
f ensiv-Szenario

mill. €

12.000
in Mio.

11.500
maintenance in
Wartungsarbeiten
Total marketfür

11.000
Gesamtmarkt

10.500

10.000

9.500
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
Figure 18: IFA prediction for the service market
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.

28
Figure 19: Discount mania in aftersales
Source: Institut für Automobilwirtschaft (IFA)

29
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
>30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

2009 2010

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

30
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 mill.


mill.

Segment II: 5 – 7 years

9.30 mill. 9.84 mill. 9.32 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

11.0 mill. 13.33 mill. 15.05 mill. 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:

¾ 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.

¾ 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
31
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:

¾ Pure directories of workshops

¾ Repair job descriptions from customers and offers from shops

¾ Auctions for the most inexpensive shop offer (reverse auction)

¾ Combinations of the first three models.

32
Figure 22 gives an overview of various repair exchanges and their respective
business models.

Name, address Business model Costs

www.repcar.de  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.

www.autoreparaturen.de  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.

www.motoso.de  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)

www.autoservicefinder.de  Workshop finder (address Free

database)

www.freie‐werkstatt24.de  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)

33
+ customer job descriptions for all

types of repairs (reverse auction)

www.my‐hammer.de  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.

www.blauarbeit.de  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.

www.werkstattsuche.com 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

34
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%.

35
70%

60%

50%

40%

30%

20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Authorised shops of
Vertragswerkstatt derown manufacturer
eigenen Marke Other automotive
sonstige shops
Kfz-Werkstatt

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%.

36
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.

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

37
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 29 35 27 24 31 26
next 6-12 months”

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).

38
Car sharing members

Car sharing vehicles


Car sharing members

Car sharing vehicles

As of 1 January of each year

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).

39
Preisniveau
Price 29.9

Qualität &Quality and reliability


Zuverlässigkeit of work
der Arbeiten 26.6

Quality
Qualitätofder
parts / original parts
Teile/Originalteile 24.5

Örtliche Nähe der


Local proximity Werkstatt
of workshop 7.4

SchnelligkeitSpeed
der Reparaturen/Wartezeiten
of repairs / waiting time 5.3

Quality
Qualitätofder
advisement
Beratung 1.7

Terminverfügbarkeit
Appointment availability 1.4

Hours of operation
Öffnungszeiten 0.5

Termineinhaltung
Meeting deadlines 0.4

Sonstiges
Other 2.3

0 5 10 15 20 25 30 in35
%

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.

40
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

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:

¾ Demanding drivers

¾ Premium service users

¾ Car enthusiasts

¾ Value for money seekers and

41
¾ Pragmatists.

A key characteristic differentiating these various groups is the significance of


price (Figure 29).

Demanding Premium Car Enthusiasts Value-for- Pragmatists


Drivers Service Users Money Seekers

Selection of shop is -3 -49


important 35 13 16

I love cars 38 3 37 -32 -42

A low price is important


-7 -33 2 21 8

Special customer
orientation is important 9 39 11 -37 -11

Local proximity of shop is 14


-22 3 -2 6
important

Have little time, doesn‘t 20 22 -25 41


-62
matter which shop

-100 0 100 -50 0 50 -50 0 50 -50 0 50 -100 0 100

Highest Value Lowest value

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).

42
House/Home Office/Workplace

¾ Control of home technology ¾ Phone and e-mail


¾ Monitoring functions at communications
home ¾ Vehicle and fleet
management

OEM/OES/ Service partner/


Dealers Road assistance

Internet Infrastructure/Car2Car

¾ Navigation/Traffic ¾ Emergency systems/


information emergency call
¾ Entertainment ¾ Proximity warning system
¾ Travel management ¾ 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.

43
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.

44
Authorised dealer Data stored in the Authorised
vehicle workshop

Authorised dealer Information stored in Recommended


a device 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 CO2 emissions will continue to


be at the top of the agenda of the political decision-makers. The introduction
of binding CO2 limits in 2012 will launch the first stage in the reduction of
automotive CO2 emissions. It will probably be possible to achieve the limit of
120 g/km CO2, 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 CO2 targeted for 2020 is likely to require more extensive
alternative drive concepts, however.

Apart from additional tax burdens for vehicles with high CO2 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

45
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.

46
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.

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.

47
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 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

48
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

373 384
400 362 369
346 340
319
304
300

200
2002 2003 2004 2005 2006 2007 2008 2009 2010 *
* Forecast

Trading in motor vehicles


Handel m.Kraftwagen Instandhaltung u.Rep.v.Kraftwagen
Motor vehicle maintenance 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.

49
Index Index
220 110
Vehicles per Workshop

Number of vehicles per workshop


200 100
Number of car workshops
Number of car workshops

180
90
160
80
140
70
120

100 60

80 50
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.

50
Original Authorised Original Parts Workshop Indepen- Specia-
Equipment Equipment dent
Manufacturer
workshop whole- systems/ lists
Supplier workshops
saler chains
Trend I: The service market will
develop negatively P P P P P P P
Trend II: Older vehicles continue
to gain in importance J J J N N N J
Trend III: Internet exchanges
direct customer flows J P J J N N J
Trend IV: Intermediaries change
the market structure J P J J N J N
Trend V: Polarisation of
customer segments N N J J N N J
Trend VI: The connected car –
opening up the automotive P P N J N J J
system
Trend VII: E-mobility
N N J P J P J
Trend VIII: Consolidation in
aftersales J P J P J P P

Figure 36: Relevance of the market trends for selected market


participants
Source: Institut für Automobilwirtschaft (IFA)

The overview clearly shows that the underlying conditions for aftersales
business are likely to become more difficult for the contractually bound
players, whereas independent suppliers, particularly including workshop
systems and chains, can benefit from a number of trends. It will be the
players themselves, however, who finally decide whether they take
advantage of opportunities or are caught up in the potential risks with their
strategic responses to these challenges.

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


business

4.1 Objectives and methods

An exploratory survey was carried out as part of this study in late July / early
August 2010 in order to identify the future challenges and opportunities in the
aftersales sector in a practice-oriented manner. The purpose of this was to
bring the development trends described above face to face with the
appraisals of trade professionals and to obtain points of reference for their
future strategies and fields of action.

51
The IFA Dealer Panel that was used for this contains more than 3,500
addresses, most of which belong to authorised dealers and workshops. The
questions were communicated to and answered by the dealer panel
participants online. The survey period extended from the end of July to the
beginning of August 2010. N = 98 authorised dealers and workshops took
part in the survey, whereby their composition approximately corresponds to
the basic population in terms of the represented brands. It may therefore be
assumed that the obtained results have a high relevance.

The profile of the survey participants is shown in Figure 37, which indicates
that 42 percent of the surveyed companies employed between 1 and 10
people. As far as the workshop throughputs were concerned, most of the
companies − i.e. 54 percent − recorded a maximum of 30 workshop events.

52
Number of facilities

Workshop throughputs
Number of facilities

Employees Employees Employees Employees Employees Employees Employees Employees

Employees

Figure 37: Profile of the survey participants


Source: IFA Händlerpanel 2010

4.2 Development of aftersales business

The first block of questions aimed to obtain an assessment of the


developments in aftersales business over the last three years. The results of
the survey provide a positive picture on the whole (Figure 38).

53
Increased Decreased Decreased
- In % - Increased Constant
considerably slightly considerably

How have your parts sales developed? 3.1 59.2 17.4 17.4 2.0

How has the utilisation of workshop 2.0 40.8 34.7 18.4 4.1
capacity developed?
How has the number of sold labour hours 1.0 43.9 30.6 20.4 4.1
developed?
How has the number of employees in the 0.0 21.4 58.2 19.4 1.0
workshop developed?

Figure 38: Development of workshop business over the last 3 years


Source: IFA Händlerpanel 2010

Forty-five percent of the survey respondents said that the number of labour
hours sold had increased over the last three years, although only one percent
of respondents described the increases as being substantial. A similar
development is evident in the utilisation of workshop capacity, with around 43
percent of respondents stating that it had increased during the period under
review. An appraisal of parts sales produced even more positive results:
more than 60 percent of respondents saw an increase in parts sales during
the last three years. This corresponds with the trend towards greater growth
in parts sales than labour sales that has been recognisable for some time
now, due to the fact that more items are replaced rather than being repaired.

This generally positive picture is put into perspective by the moderate


development in the employment situation. Fifty-eight percent of the survey
respondents stated that the number of productive employees in the workshop
had remained constant, for instance. The number of respondents reporting
increases and reductions in employment figures almost balanced one
another out, with 21 percent recording increases in the number of workshop
employees and slightly more than 20 percent recording decreases.

4.3 Assessment of the competitive situation

Asked about their strongest competitors in workshop business, the vast


majority of authorised dealers and workshops mentioned workshop chains,
such as ATU, glass repair and replacement specialists and other authorised
workshops serving the same make of vehicle. Thirty-seven percent of

54
respondents considered these to be the most important competitors (Figure
39).
Particularly
Strong Moderate Weaker
- In % - strong
competition competition competition
Weak competition
competition

Workshop chains (e.g. ATU) 6.1 31.6 35.7 18.4 6.1


Glass specialist 6.1 30.6 31.6 16.3 12.2

Independent workshop with 5.1 22.5 42.9 21.4 6.1


workshop system (e.g. Automeister)

Other authorised workshops with the 14.3 22.5 14.3 25.5 21.4
same brand
Independent workshop without 6.1 17.4 33.7 29.6 11.2
workshop system

Tyre specialist 4.1 21.4 32.7 24.5 14.3

Bosch service 0.0 14.3 29.6 33.7 20.4

Fast Fitter (e.g. Pit Stop) 1.0 8.2 29.6 32.7 24.5

Figure 39: Competitive situation in the aftersales sector


Source: IFA Händlerpanel 2010

One astonishing aspect is the high percentage mentioning authorised


workshops for the same make of vehicle, whereby there is a conspicuously
high proportion of respondents who state that this group is the strongest
competitor by far (14.3 percent). Intra-brand competition obviously plays a
significant role in the aftersales sector, as well as in the new car business.

The classical independent workshops, tyre specialists and Bosch service


centres also rate relatively highly among the potential competitors. Fast
fitters, such as Pit Stop are therefore only regarded as being important
competitors by a relative low percentage of respondents.

This means that, on the whole − apart from intra-brand competition −


workshop systems and chains are the main rivals for the authorised
workshops. High rates were also achieved by the specialist firms, however,
particularly including the glass repair and replacement shops.

55
4.4 Future opportunities in the aftersales sector

The authorised workshops consider the growing technical complexity and the
− closely related − increasing number of new technologies in the vehicle to
be their best opportunity both today and in the future. The contractually
bound providers in the service market are therefore obviously relying on their
high level of brand-specific technical competence (Figure 40).
Very huge Huge Moderate Fewer
- Figures in % - opportunities opportunities opportunities opportunities
Few opportunities

Growing technical complexity of the 32.7 55.1 8.2 1.0 2.0


vehicles

New technologies in the vehicle 29.6 58.2 9.2 1.0 1.0

Growing importance of older vehicles 14.3 39.8 29.6 11.2 4.1

Need for additional IT and 6.1 38.8 30.6 19.4 5.1


communication technology in the
vehicle
Purchasing spare parts in the free 8.2 27.6 32.7 21.4 9.2
parts market
Trends towards the electric car 9.2 20.4 32.7 29.6 5.1

Marketing of parts and accessories 4.1 15.3 23.5 35.7 20.4


via the Internet
Growing demand for accessories 0.0 4.1 39.8 41.8 12.2

Growing demand for tuning 0.0 3.1 27.6 46.9 21.4

Figure 40: Future opportunities in the aftersales sector


Source: IFA Händlerpanel 2010

All the same, more than half of the survey respondents also see opportunities
in the growing importance of older vehicles, while the additional demand for
information and communication technologies also met with a high level of
approval. Even so, just under a third of the respondents regarded the trend in
the direction of electric cars as being a positive development for their
workshop business.

4.5 Future risks in the aftersales sector

The list of potential risks in the aftersales sector is clearly led by the claims
management of the car insurance companies. More than 80 percent of the
56
authorised dealers and workshops surveyed regard this as a high-level risk,
with 45.9 percent of respondents rating it as a very high-level risk (Figure
41).
- Figures in % - Very high risk High risk Medium risk Lower risk Low risk

Claims management systems of the 45.9 35.7 13.3 4.1 1.0


car insurance companies

Customers‘ increasing price 26.5 53.1 19.4 1.0 0.0


sensitivity

Extensions to maintenance intervals 31.6 42.9 18.4 7.1 0.0


and the decline in repair needs
Discount wars in the service sector 23.5 44.9 25.5 5.1 1.0

Stagnating vehicle population 11.2 34.7 33.7 14.3 5.1

Lower service requirements for 9.2 22.5 32.7 24.5 8.2


electric vehicles
Appearance of new competitors 3.1 23.5 42.9 25.5 5.1

Service exchanges on the Internet 6.1 16.3 40.8 30.6 6.1

Figure 41: Future risks in the aftersales sector


Source: IFA Händlerpanel 2010

Workshop prices are also giving cause for concern. Almost 80 percent of
respondents are expecting customers to be more sensitive in terms of prices
and 68 percent are dreading discount wars. Extensions to maintenance
intervals and the decline in repair needs are also high on the list of concerns.
The propagation of electric vehicles with lower service requirements, the
emergence of new suppliers and service exchanges on the internet are
regarded as being more minor risks.

4.6 Fields of action in the aftersales sector

In accordance with the perceived opportunity potential with respect to


growing technical complexity and the increasing importance of new
technologies, the authorised dealers and workshops surveyed regard the
qualification of employees as being the most important field of action. Over
90 percent of respondents consider this to be an important or very important
field of action (Figure 42).

57
Very
- Figures in % - important
Quite important Indifferent Less important Unimportant

Employee qualifications 63.3 33.7 3.1 0.0 0.0

Improving customer satisfaction 64.3 24.5 8.2 2.0 1.0

Active service marketing to ensure 46.9 41.8 9.1 1.0 1.0


the utilisation of workshop capacity

Optimisation of workshop processes 46.9 38.8 12.2 1.0 1.0


More cost effective purchasing of 26.5 43.9 22.5 7.1 0.0
parts and accessories
Reducing costs in the workshop 18.4 44.9 27.6 7.1 2.0

Taking on additional brands 5.1 18.4 35.7 23.5 17.4


(multi-brand service)

Figure 42: Fields of action in the aftersales sector


Source: IFA Händlerpanel 2010

Other fields of action have high priority ratings as well, however, such as
improving customer satisfaction, active marketing of services to ensure the
utilisation of workshop capacity and the optimisation of workshop processes.
More cost-effective purchasing of parts and accessories also achieved an
approval rate of over 70 percent.

Multi-brand service, on the other hand, does not appear to be a significant


strategic option for the majority of respondents, with only 23.5 percent of
them regarding this field of activity as being important or very important.

4.7 Interim conclusion II: Strengthening the strengths − a promising


strategy?

The results of the explorative survey show that authorised dealers and
workshops think according to proven strategic patterns: opportunity potential
is seen in continuously growing technical complexity, requiring more highly
qualified personnel in order to exploit it. Will the strategic focus on technology
and personnel qualifications be enough to secure the future?

The survey respondents also have a relatively clear picture of the major risks
and challenges, at least: the power wielded by the insurance companies in
the accident repair sector, increasing sensitivity to prices among customers
58
and the sagging maintenance and repair markets. The respondents regard all
of these factors affecting service business as being real threats − and they
are right to do so, as shown by the trend analysis in this study.

The high priority given to the various fields of action by the authorised
dealers and workshops demonstrates great willingness to take action and is
an expression of the knowledge that there will be fundamental changes in the
aftersales market in the years ahead. This ascertainment is where the
theoretical analysis and practical experience come together. Which strategic
conclusions must be drawn by the service providers, whether authorised or
independent, in order to retain long-term competitiveness in this changing
environment?

59
5. Strategies and fields of action in the service market of the future

5.1 Innovative service formats

More differentiated service formats that are better oriented to the pertinent
groups of customers and their needs will be required in future to do justice to
the development trends described above. Current car service concepts −
offered by both authorised and independent service providers − pursue the
"all-round service" principle. After all, every customer should be addressed
and satisfied by more or less the same level of service and support. The
advantage of this concept is that a wide service range is offered to each
customer at the respective service location. It is also increasingly non-ideal,
however, given the increasingly diversified needs of the customer.

This has been recognised by a growing number of market players, who are
trying to introduce differentiation into the all-round service model that is
dominating the market today. They soon come up against limits in many
cases, however, as the business models behind the various service concepts
are irreconcilable. It is therefore necessary to generically develop pioneering
service formats from future market conditions and base these on stable
business models.

The situation is further aggravated by the fact that the customer structures
are changing. The classical private customer, who buys a vehicle and then
drives it to the workshop to have the necessary maintenance and repair work
done, is gradually becoming less important. This customer is being replaced
by intermediaries, who administer complete fleets of vehicles and are
therefore responsible for deciding where the vehicle is taken for service. The
actual users have nothing to do with service under normal circumstances, or
follow the advice of their mobility service providers.

If these two criteria − differentiated customer needs and changed usage


profiles − are followed to their logical conclusion, four innovative service
formats with future potential can be identified (Figure 43):

¾ the premium service provider

¾ the service discounter


60
¾ the service factory and

¾ the mobility service outlet.

Premium Service Mobility Service


High Value

Provider

Service Discounter Service Factory


Low Cost

Owning Using

Figure 43: Innovative service formats in the automotive service


sector
Source: Institut für Automobilwirtschaft (IFA)

61
These four different formats are characterised in the context of the pertinent
groups of customers and the business models on which they are based in
Figure 44.

Business model Premium Service Service Discounter Service Factory Mobility Service Outlet
Provider
Customer focus Wealthy private Price-oriented private Intermediaries (leasing Operators or users of
customers, user choosers customers and fleet management innovative mobility
companies) concepts
Relationship to the Personal relationship with Internet-based customer Relationship to the fleet Mobility provider as the
customer the customer - permanent relationship; service corner manager / pool manager contact person for service
contact person
Value proposition Brand-exclusive service Permanently low prices - Standardised maintenance Comprehensive mobility
with comprehensive guaranteed fixed prices and repair work in concept with integrated
convenience and support accordance with the service, including ongoing
spectrum manufacturer's vehicle care
specifications with
guaranteed quality
Revenue model ¾ Active sale of ¾ Menu pricing for basic ¾ Framework agreement ¾ Charge model for
supplementary and supplementary with quantity-dependent vehicle use (packages)
products / services, products / services discount schemes
including accessories,
according to customer
requirements ("wants")
¾ Order-dependent
pricing
Value-added ¾ Maximising the scope ¾ Maximising the workshop ¾ Cost-optimised service ¾ Internet-based customer
model of products / services throughputs processes organised at processes
per customer / order ¾ Focusing on standard an industrial level ¾ Subcontracting on a
¾ High level of internal repairs ¾ Use of subcontractors case-by-case basis
service depth ¾ Trained employees in specialist areas
¾ Qualified employees ¾ High proportion of ¾ Quality of parts in
¾ Use of original parts identical parts accordance with
customer requirements
Customer ¾ Loyalisation of ¾ Focus / price advertising ¾ Personal key account ¾ Internet-based
acquisition and purchasing customers in daily news- management marketing for urbane
support model ¾ Personal papers/supplements ¾ Internet-based handling target groups
recommendation ¾ Active search engine of business processes ¾ Customer club as part of
¾ Customer support by marketing, including "closed" user pools
means of classical placements in service
media (letter, customer exchanges
magazine etc.)

Figure 44: Innovative service formats: overview of business models


Source: Institut für Automobilwirtschaft (IFA)

The preferred target group of the premium service providers are private
customers and user choosers, who have a high affinity with their vehicles and
are willing to pay the prices. The success of this service format depends on
the development of particularly lucrative segments in the service sector
combined with well above-average support.

Orientation to this group of customers may be based on a strategy of


qualitative rather than quantitative growth, which expands the "wants" section
of the service range instead of simply satisfying the "needs". The areas of
high-quality car care, rims & tyres, infotainment & entertainment, tuning,
recreation and accessories offer an ideal means of addressing these
customers.

62
„Needs“
Maintenance and repair
Automotive glazing
Tyres / rims

High-quality car care


Infotainment and entertainment
Recreation and accessories
„Wants“
Tuning

Figure 45: From "quantitative" to "qualitative" growth in the


aftersales sector
Source: Institut für Automobilwirtschaft (IFA)

Service discounters have their sights set on the private customers with
limited mobility budgets, whose primary aim is to drive economically and
reliably. The focus here should not be restricted to the owners of older
vehicles alone. It is the group of new car buyers in particular, where a
growing number of customers want to lower their running costs. The success
of this service format is determined by permanently low prices communicated
in a believable manner, extra charges for all special services and a good and
perceivable standard of quality.

The service factory concept is oriented to the growing trend towards fleet
vehicles. This is ultimately a service process organised at an industrial level,
with a high standard of quality but little in the way of personal touches, which
are not required by the targeted group of customers. A consistent process
standardisation concept is the success factor in this case.

The mobility service outlet format is emerging from the trend towards
integrated mobility services in densely populated areas. The mobility provider
takes on the workshop service for the user in this business model. The
success of this model depends on a carefully calculated charges scheme for
the total service offered.

63
Although the service formats described above are not identical to the
individual players who are active in the service sector today, they should be
used as points of reference for the development of the market players'
strategies.

The success of each service format will be determined by the consistent


implementation of the pertinent value proposition in a service profile that
focuses on the respective target group. Efforts must be concentrated on
identifying customer requirements and transposing these into service,
support and convenience packages as part of a service engineering concept.
Figure 46 shows the divergent aspiration and performance profiles for the
four service formats mentioned above.

Premium Service Service Mobility Service


Service Factory
Provider Discounter Outlet
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Permanent contact person

Proximity

Brand expertise

Use of original parts

Pick-up and return service

Low prices

Generous goodwill policy

Flexibility with respect to


unforeseen repairs

Appointments made
at short notice

Internet-based
order acceptance
1 = very high, 2 = high, 3 = moderate, 4 = low

Figure 46: Aspiration profiles for various service formats


Source: Institut für Automobilwirtschaft (IFA)

64
5.2 Challenges, strategies and fields of action for the players in the
service market

5.2.1 Car manufacturers

Aftersales business has strategic importance for the car manufacturers from
four points of view (Figure 47):

¾ Parts business is an important source of profitability for the OEMs

¾ Good aftersales business is a stabilising factor for the dealer network

¾ Aftersales business accounts for 50 % and therefore a high proportion of


customer satisfaction and the associated loyalisation of the customers.

¾ The quality of aftersales service is part of the brand image and brand
awareness.

Profitability of parts Stability of the dealer


business network

Car manufacturer

Aftersales service as Element of customer


part of the brand satisfaction
image

Figure 47: Strategic relevance of aftersales business from the


OEM's point of view
Source: Institut für Automobilwirtschaft (IFA)

What consequences do the trends outlined above have for the car
manufacturers?

The car manufacturers' most important strategic objective should be to


safeguard the profitable parts business. Furthermore, they must make a
contribution towards safeguarding the service business of their authorised
workshops as the stability of their respective sales and dealership
organisations depends on them.
65
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. There is no doubt
that the further expansion of customer retention in the direction of older
vehicles will continue to be an important field of action for the car
manufacturers.

The strategies and measures adopted by car manufacturers today are


oriented to the customer loyalty curve and the age-segment breakdown
based on this (Figure 48). It begins by exploiting the customer relationship to
the most profitable extent possible by means of a comprehensive spectrum
of assistance, support and accessories. This is backed up by warranties and
extensions of warranties into age segment II. The parts pricing policy for
parts that are vulnerable to competition will be more competitively oriented in
the tightly contested segment II. Vehicles in age segment IV should be
primarily bound to authorised workshops by means of service programmes
that are in line with their current market value. This also includes the use of
2nd parts ranges. As far as segment IV vehicles are concerned, the car
manufacturers want to continue their participation by actively marketing parts
to independent workshops.

Active marketing of
parts to independent
workshops
Exploiting the
customer relationship

Competition-oriented
price policy

Service in line with


the current market
Retain customers by means of guarantees value (e.g. service
and flat rates and parts range)

Segment I Segment II Segment III Segment IV

Figure 48: Competitive strategies and fields of action in the


authorised system
Source: Institut für Automobilwirtschaft (IFA)

66
The competitive strategies for older vehicles practiced so far have certainly
proved effective, as shown above. There has been an upward trend in the
market penetration of authorised workshops for older vehicles. The adopted
strategies are associated with high costs and/or reductions in proceeds for
the manufacturers, however. We must therefore assume that they will
attempt to strengthen their grip on older vehicles by means of more far-
reaching loyalty offers in the years to come.

Very long-term customer loyalty strategies have been in place in the service
sector in other countries, such as Switzerland, for many years now. The
Mercedes "Swiss Integral" programme includes all repairs for up to 3 years or
100,000 kilometres and all maintenance services for up to 10 years or
100,000 kilometres (Figure 49), for example.

Figure 49: Mercedes Swiss Integral as an example of long-term


service ties
Source: Mercedes-Benz Switzerland

It therefore comes as no surprise to hear that some manufacturers are


thinking about offering integrated product & service packages according to
the "service inclusive" principle (Figure 50). Opel's recent decision to offer a
"lifetime warranty" for the new models is another step in this direction.

67
Figure 50: Retaining customers by means of "service inclusive" as
offered by the BMW Group
Source: Automobilwoche journal dated 14 July 2008

One very far-reaching strategic option for car manufacturers is to develop


their service business model into a mobility provider concept. The value
proposition of a mobility provider is simple: he provides the customer with
carefree mobility in accordance with the customer's wishes and
requirements. The customer does not need to worry about the acquisition,
financing or maintenance of a new vehicle, or the sale of the old vehicle. The
customer's relationship with his car is confined to the pleasurable aspects,
i.e. simply using and driving it.

The scope of services offered by the mobility provider depends on the


respective usage. There are basically two models:

¾ the customer receives a vehicle for exclusive, long-term use, or

¾ the customer receives a vehicle for shared, temporary use with other
customers.

68
While the first model corresponds to the leasing principle, the second relates
to the rental principle. There are certain tasks, which must be performed by
the user with the first model, such as regular care, service and maintenance
of the vehicle. These services are performed by the mobility provider for the
rental model.

The whole point of the mobility provider's revenue model is that he receives a
fee for providing, maintaining and selling the vehicle. This may take the form
of a fixed monthly charge or a mileage-dependent charge (or a combination
of both) according to the pertinent usage model.

The value-added model of the mobility provider depends on how he


organises the service provision process for the user. If the mobility provider
has adopted a fully integrated value-added model, he would offer all of the
services himself or via a network of affiliated companies. If the model is a
fully disintegrated one, the mobility provider would merely be the brand
holder and would offer all of the services through suppliers.

A mobility provider's business model description clearly shows that there are
already players in the automotive market who could grow into the mobility
provider role. Most of these are leasing companies or car rental companies,
which cover both of the fundamental usage models as part of their mobility
service.

It goes without saying that the effects on the aftersales sector will be very
much determined by the question as to who finally grows into the mobility
provider role. The car manufacturers, their leasing companies and the large
car rental businesses, have the greatest chance of taking over the leadership
of the system by virtue of their high profile, size and financial power alone, as
well as their know-how and experience in organising and controlling large
pools of vehicles. However, the potential of the financially powerful electricity
supply companies must not be underestimated when it comes to the
electrical mobility sub-segment.

Case study: Daimler's Car2Go and Peugeot's Mú

Car2Go is a mobility concept that enables users to move around the city
without their own cars. The concept has been in place since the autumn of
2008 and has around 18,000 registered users. Around 60 percent of these
69
are between 18 and 35 years of age. Car2Go is based on a fleet of 200
Smart Fortwo cdi cars, which are parked at various locations throughout Ulm
and Neu-Ulm and are equipped with a keyless entry system (card reader).
Following a one-off registration process and the purchase of a Car2Go chip
(single fee of 19 euros), the user can log into the booked vehicle and open
and close the doors. He then enters his PIN into the telematics unit with
touch screen, removes the ignition key from the glove compartment and can
set off on his journey.

The flexibility philosophy is underlined by the easy accessibility of the


vehicles on foot. It should not be necessary for a user to walk for longer than
three minutes before reaching a vehicle. A car may be booked by telephone,
online or spontaneously in passing if a user comes across a parked vehicle
that has not been booked. When no longer required, the vehicle may be left
in any free public parking spaces or the "Car2Go parking spots".

Compared with the classical rental car system, the specific differences are
obvious: the pick-up and return stations are flexible and may be chosen by
the customer. Charges are only levied when the car is actually in use, which
means that the customer is charged 19 euro cents per minute as long as he
is logged into the vehicle. The simplicity of the cost structure is another
factor, with the "all-inclusive" price per minute covering all of the costs for
fuel, service, taxes, insurance etc.

The customer can monitor the costs incurred and the distances travelled on
the Car2Go.de portal, where he can view all of his journeys during the
previous month with details of the departure and destination addresses, the
rental durations, the distances travelled and the prices.

The "Mú by Peugeot" mobility concept is based on the idea of covering a


person's entire mobility needs, from bicycle and car through to air travel and
hotel bookings, with a single mobility card. The user purchases mobility
points, which are stored in a prepaid card and are then cashed in to purchase
the various services.

The acceptance and economic feasibility of this concept are currently being
investigated as part of a pilot project at the Berlin-Brandenburg branch of
Peugeot. In concrete terms, this means that a customer can use Mú to rent a
70
car, a bicycle, a motor scooter or accessories, such as a roof box for the
family holiday. The iOn electric car should also be available for rental within
the framework of the Mú concept starting in autumn 2010.

The potential strategic profile of the car manufacturers in the aftersales


sector is shown in Figure 51.

Challenges
¾ Diminishing maintenance and repair volume for newer vehicles
¾ Parts sales jeopardised by the authorised workshops' loss of market shares
¾ Opening the car system

Strategies
¾ Extending customer loyalty
¾ Establishing different service brands
¾ Further development to become a mobility provider

Fields of action
¾ Increasing market penetration with flat-rate products
¾ Bundeling products and services („service inclusive“)
¾ Developing a second service and parts range
¾ Active network policy and a review of the service formats
¾ Establishing and intengrated, use-based business model

Figure 51: Strategic profile of the car manufacturers


Source: Institut für Automobilwirtschaft (IFA)

5.2.2 Authorised dealers and workshops

Aftersales business is of existential importance to authorised dealers, as


shown above. Considering the unsatisfactory gross proceeds in the new and
used car sectors, the authorised dealership business model relies on well-
functioning workshop and parts business to a very great extent. Apart from
this, service business plays an important role in stabilising the authorised
dealership sector. While new car business is subject to extreme fluctuations

71
in some respects, service business is characterised by a relatively
continuous development (Figure 52).

66

Aftersales turnover in billions of euros


New car sales in billions of euros 64
28

62 26

60 24
58
22
56
20
54

52 18

50 16

Development of turnover
Umsatzentwicklung in new car sales
im Neuwagenverkauf Umsatzentwicklung im After
Development of turnover in Sales
aftersales business

Figure 52: Importance of car service: a stable factor in the car


dealership sector
Source: Institut für Automobilwirtschaft (IFA)

Authorised dealers and workshops have less strategic room for manoeuvre
due to their contractual obligations. Authorised workshops must adopt a
strategy of positioning themselves as the brand champion in the regional
competitive environment. This does not necessarily mean a single-brand
strategy. It is quite possible for an authorised dealer or an authorised
workshop to make a name for itself as a multi-brand service centre.

Although authorised workshops should use their respective manufacturer's


range of services and support as the basis for their own activities, they may
also supplement these by means of expedient measures at the point of
service. This means, for example, augmenting the customer loyalty
programmes devised by the manufacturer with offers to store summer /
winter tyres.

There are many facets to the implementation of a brand champion strategy. It


ultimately boils down to the development of an integrated service philosophy
and the implementation of this philosophy. One example of this is Autohaus

72
Kunzmann, a car dealership that has been exceptionally successful in its
activities for many years now.

Case study: Autohaus Kunzmann – The New Service Dimension

Autohaus Kunzmann is the Mercedes-Benz representative in Aschaffenburg.


Having sold 4,620 new and second-hand cars, Kunzmann is one of the
TOP 100 dealer groups in Germany with eight sales and service facilities.

The brand slogan alone − in itself unusual for a car dealer of this size −
draws attention to the highly service-oriented company philosophy: Autohaus
Kunzmann – The New Service Dimension. The essential elements of the
service concept are as follows:

¾ Customer management in sales oriented to relationships rather than


transactions
¾ Active service marketing with special offers all year round
¾ Multi-brand service as a result of taking over VW service agreements
(cars and commercial vehicles)
¾ Internet-based marketing of parts
¾ High personnel qualifications.

Although each of these elements may not seem particularly innovative in


itself, their consistent implementation at every level has led to the well above-
average success of Autohaus Kunzmann in the service sector.

73
Figure 53: Autohaus Kunzmann – The New Service Dimension
Source: www.kunzmann.de

74
Figure 54 shows the strategic profile for authorised dealers and workshops.

Challenges
¾ Reduced utilisation of workshop capacity due to the diminishing maintenance
and repair volume for newer vehicles
¾ Loss of direct customer contact due to intermediaries and repair exchanges
¾ Dependence on the dealers' service and parts strategies

Strategies
¾ Positioning as brand champion in the regional market

Fields of action
¾ Optimisation of sites, structures and processes
¾ Integrated service concept
¾ Multi-brand service
¾ Active internet marketing
¾ Low-cost sourcing and active marketing of parts

Service formats
¾ Premium Service Provider
¾ Mobility Service Outlet (as part of a manufacturer concept

Figure 54: Strategic profile for authorised dealers and workshops


Source: Institut für Automobilwirtschaft (IFA)

75
5.2.3 Automotive suppliers

As far as automotive suppliers are concerned, the aftermarket constitutes an


important pillar for sales and revenue, which is second only to the OEM
business. In this area of conflict there are few strategic options available.
Forward integration is one approach that is already practiced today by
expanding "soft franchise" systems (Figure 55).

System name System supplier Focal points Number of


partners in
Germany
Ate-Bremsen-Center Continental Teves Brake systems, brake control systems 1,160
Boge-Service ZF Services Chassis 1,830
Delphi-Service-Center Delphi Deutschland Diesel injection, air conditioning, engine No data
management, chassis
Hella-Service-Partner Hella Electrics, electronics, lighting, air conditioning No data
Lemförder-plus ZF Services Steering, chassis 2,020
LuK-Meister-Service Sachaeffler Automotive Aftermarket Drive, engine, chassis 650
Original-Sachs-Service ZF Services Clutch, chassis Pkw: 6,970
Lkw: 545
Prieburg-Service MS Motor Service Deutschland Fuel and air supplies, emission reduction, OBD No data
TRW-Auto-Service TRW Kfz-Ausrüstung Brakes, steering, chassis 2,400
Valeo-Clim-Service- Valeo Service Deutschland Air conditioning No data
Partnerkonzept
Webasto-Service-Center Webasto Auxiliary heaters, roof systems, air No data
conditioning, auxiliary cooling systems
Webasto-Professional- Webasto Auxiliary heaters, roof systems No data
Autohaus
Fachbetrieb für Heizung Webasto und Dometic Waeco Auxiliary heaters, roof systems, air No data
und Klima conditioning, auxiliary cooling systems

Figure 55: Overview of detailed workshop systems


Source: asp Werkstattsysteme, Issue: May 2009

There are few automotive suppliers in such strong market positions that they
can establish themselves in a broader fashion in the aftersales sector. One of
the suppliers who adopt this strategy is Bosch which, apart from extending its
product and service range, added the Auto Crew workshop system to its
Bosch services just a few months ago.

Because parts wholesalers act as "gatekeepers" 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 be more competitive in simple components.

76
Activities that are directly targeted at the end customer will probably remain
the exception for automotive suppliers in the future as well. It would put them
in direct competition with the car manufacturers. The separation of
aftermarket activities from OEM business could support the market proximity
of the automotive suppliers, however.

Figure 56 shows the strategic profile for this group of suppliers.

Challenges

¾Pressure from the manufacturers in the aftermarket business


¾Lack of access to the end customer
¾Competitive pressure due to identical no-name parts

Strategies

¾Forward integration by means of soft franchising


¾Development of system components

Fields of action

¾Making soft franchises more attractive


¾Re-arranging the distribution channels in the aftermarket sector
¾Separating aftermarket and OEM business
¾Using low-cost locations

Figure 56: Strategic profile of automotive suppliers


Source: Institut für Automobilwirtschaft (IFA)

77
5.2.4 Parts wholesalers

Parts wholesalers occupy a very strong position in the distribution structure


for spare parts and accessories, particularly by virtue of their channelization
function and logistics expertise.

As already mentioned above, the parts wholesale sector in Germany is


considered to be oversaturated, so it seems likely that a consolidation will
take place in the next few years. An active consolidation strategy therefore
constitutes a key strategic option for parts wholesalers.

Nearly all of the workshop systems in Germany are currently backed by parts
wholesalers, who want to safeguard the sales of their parts to the end
customers. The strategic orientation of the parts wholesale sector is therefore
very closely meshed with that of the workshop systems. The takeover of the
Pit Stop chain of fast fitter shops by parts wholesaler PV Automotive
underlines the relevance of such a forward integration strategy.

The strategic profile for parts wholesalers is shown in Figure 57.

Challenges

¾ Blockage strategy of the OEMs


¾ Oversaturation in the wholesaler network

Strategies

¾ Forward integration by means of workshop systems


¾ Active consolidation strategy

Fields of action

¾ Further development of the workshop systems and optimisation of the


networks
¾ Low-cost sourcing

Figure 57: Strategic profile of the parts wholesalers


Source: Institut für Automobilwirtschaft (IFA)

78
5.2.5 Workshop systems

The workshop systems have full franchise character and are primarily run by
parts wholesalers. They have undergone a dynamic development in recent
years. Nevertheless, the brand awareness and prestige of individual systems
suffer as a result of their relatively limited level of distribution. A broader
network structure is therefore essential to the success of the workshop
systems (Figure 58).

Current number of Ins/Outs 2009 Target for 2010


system partners

AC Auto Check 585 64/14 650


575 75/25 700
Ad-AUTO DIENST/AUTOMOBIL
800 120/20 1.000
AUTOMEISTER 83 13/7 No data

AutoCrew 400 No data No data

Auto Service Partner 493 65/24 550

Bosch-Dienste 1,013 No data Replacement only

1a autoservice *)
1,523 *)
No data 10 % improvement

Meisterhaft auto reparatur 1.614 77/50 Approx. 1,800 *)

Premio Reifen- und Autoservice 241 20/1 265

MOTOO **) 146 15/- 165


*)
including Austria
**)
Workshops

Figure 58: Development of selected workshop systems


Source: AUTOHAUS No. 3/2010

The workshop systems should be strategically positioned by their value for


money and a clear differentiation from authorised workshops. The scope of
services may also be expanded by means of an active cooperation strategy.
This means that it would certainly be conceivable to market portable terminal
devices for use in cars via workshop systems, for instance. The recreation
sector, which is served very intensively by automotive specialised markets,
could open up new potential for workshop systems.

Workshop systems address price-sensitive customers with low mobility


budgets, which means that the pricing policy should be transparent (menu
pricing). Apart from this, workshop systems should also offer financing for
accessories and repairs.
79
The growing importance of intermediaries with their multi-brand vehicle fleets
offers a great opportunity for workshop systems. This is where workshop
systems could take advantage of their multi-brand capability.

As far as service formats are concerned, the workshop systems could give
precedence to the adoption of the "service discounter" and "service factory"
formats.

Figure 59 shows the strategic profile of the workshop systems.

Challenges

¾ Safeguarding technological expertise


¾ Predatory competition with authorised workshops
¾ Pressure due to repair exchanges

Strategies

¾ Strengthening the market position through value for money


¾ Active cooperation strategies to expand the scope of services

Fields of action

¾ Optimising the price strategy ("menu pricing")


¾ Framework agreements with intermediaries
¾ Cooperative ventures with IT and communication technology companies
outside the trade
¾ Establishing independent customer retention strategies

Service formats

¾ Service Discounter
¾ Service Factory

Figure 59: Strategic profile of workshop systems and chains


Source: Institut für Automobilwirtschaft (IFA)

80
5.2.6 Workshop chains and specialised markets

The strategic positioning and corresponding strategic profiles of workshop


chains and specialised markets are very similar to those of the workshop
systems. Unlike the workshop systems, these two types of operations are
characterised by a decidedly centralist management concept, which offers
advantages in terms of a homogeneous market presence, professionalism
and cost efficiency.

ATU is representative of this entire group of suppliers. ATU has clearly


positioned itself as a service discounter and organises its marketing
communications accordingly. ATU is always on the look-out for unusual ways
of approaching customers, which have included a cooperative venture with
Norma, a food discounter, which offered inspections at a rate of 49.99 euros
at 1,250 branches throughout Germany.

Backward integration is another strategic approach adopted by ATU, which


actually means entering the car trade. In this respect, ATU performs a
mediating function, accessing customers who own newer vehicles
(Figure 60).

81
Figure 60: ATU online agency for new vehicles
Source: ATU 2010

This group of suppliers also has a very strong orientation towards the
recreation and accessories sectors, in which high levels of trade revenues
can be made. One of the players who has expanded its operations in this
area considerably is the Halfords Group. Halfords not only offers accessories
for specific vehicle models, but also bicycles, tents and many other types of
technical recreation products (Figure 61). ATU is pursuing similar
approaches in some respects.

82
Figure 61: Halfords – the mobility specialist
Source: www.halfords.com

Joint ventures with intermediaries constitute another strategic option for


workshop chains. ATU now have 2000 customers with large fleets, which add
up to a total of 400,000 vehicles, according to data supplied by the company.
ATU already boasts a clear-cut profile as both service discounter and service
factory today.

83
Figure 62 shows the strategic profile for workshop chains and specialised
markets.

Challenges
¾ Predatory competition with authorised workshops due to the car
manufacturers' customer retention programmes
¾ Clear differentiation from workshop systems
¾ Price competition with independent workshops

Strategies

¾ Positioning as a discounter
¾ Ensuring a high network density
¾ Backward integration by means of car dealership

Fields of action

¾ Innovative distribution channels


¾ Generating trade revenues
¾ Establishing own customer retention programmes

Service formats
¾ Service Discounter
¾ Service Factory

Figure 62: Strategic profile for workshop chains and specialised


markets
Source: Institut für Automobilwirtschaft (IFA)

5.2.7 Independent workshops

Most classical independent workshops are small businesses and their size
and limited financial resources leave little room for strategic manoeuvre.

Classical independent workshops are under particular technological pressure


exerted by the growing complexity of the vehicles and the diminishing
amount of purely mechanical repair work. They have therefore been joining

84
workshop systems or so-called soft franchises in selected fields to a greater
extent in recent years. This essentially serves to acquire know-how and to
secure support in marketing.

It is very difficult to develop a consistent strategic profile for independent


workshops as the members of this group vary considerably in terms of size,
know-how, location and professionalism. It must generally be assumed that
more independent workshops will have to team up with workshop systems in
order to survive in the market.

The independent workshops' strong points are their decidedly good price
image, their flexibility and their proximity to the customer. Armed with these
strengths, they have to continue to focus on customers who own older
vehicles − a market segment that is demonstrating a tendency to grow.
Possible strategic opportunities also emerge from cooperative ventures with
intermediaries, as long as their standards can be met by the workshops.

Furthermore, the independent workshops can also make additional groups of


customers accessible by cooperating with internet-based repair exchanges.
In doing so, they expand their scope of action and can use their favourable
cost structures to outdo other competing suppliers.

85
Figure 63 shows a possible strategic profile for independent workshops.

Challenges

¾ Falling behind technological developments


¾ Predatory competition with workshop systems, workshop chains and
specialists
¾ Financing

Strategies

¾ Positioning as all-round service provider in the local area


¾ Joining a workshop system and/or using soft franchises

Fields of action

¾ Employee qualifications
¾ Using repair exchanges for local marketing
¾ Low-cost sourcing of parts

Service formats
¾ Service Discounter

Figure 63: Strategic profile for independent workshops


Source: Institut für Automobilwirtschaft (IFA)

5.2.8 Specialists

In this context, the term "specialists" essentially refers to four groups of


service providers:

¾ Tyre stores

¾ Glass repair shops

¾ Electric suppliers

¾ Body and paint shops.

They usually hold correspondingly strong positions in their respective market


segments. On the other hand, it is this very attribute that exposes them to
competition from the "all-round" service providers in a special way. This is
aggravated by the fact that they offer a relative narrow product / service

86
range, which leaves them with hardly any means of compensating internal
risks. This means, for example, that a mild winter with relatively little demand
for winter tyres hits a specialised tyre store to a greater extent than a
business that offers a much broader range of products. A strategy for
specialists should therefore involve more intensive diversification relating to
their core competence. This may also be realised by joining a soft franchising
scheme.

With their clearly defined profiles, specialists have good prospects for
framework agreements with intermediaries. This is an area in which they can
make best use of their wealth of experience and expertise.

Figure 64 shows the strategic profile for specialists.

Challenges

¾ Predatory competition with authorised workshops, workshop systems and


workshop chains
¾ Strong price pressure

Strategies

¾ Extending the range of services (diversification)


¾ Active consolidation strategy

Fields of action

¾ Framework agreements with intermediaries


¾ Using soft franchise system to extend the product / service range
¾ Supplementary services (e.g. financing for repairs)
¾ Positioning in repair exchanges

Service formats
¾ Service Factory

Figure 64: Strategic profile for specialists


Source: Institut für Automobilwirtschaft (IFA)

87
5.3 Interim conclusion IV: Strategic options in the aftersales market of
the future

However appealing giving an answer to the question of how many market


players and which ones are going to survive the predatory competition may
be to trade observers and analysts, this way of looking at things is just as
irrelevant to industry practitioners. They are far more interested in finding a
way of surviving in this changed environment in a sustainable and profitable
manner.

This section is summarised from the industry practitioner's point of view.


Figure 65 therefore shows a systematic overview of the strategic options that
are available to the various players. It is obvious that not every player will
have the same chance of success by adopting the strategy recommended for
him. Some trends are favourable to certain players while others put them at a
disadvantage. Apart from this, the bandwidth of the strategic options that are
available to each player also varies. In this respect, the following overview
can only serve as a point of reference for possible courses of action, which
may offer an expedient means of achieving the pertinent objectives.

Trend OEM/ Automotive Parts wholesalers/ Workshop chains Independent


authorised suppliers workshop systems workshops/
workshops specialists
Trend I: Declining Customer retention Increasing market Increasing market Increasing market Joining workshop
market volume strategy penetration penetration penetration systems
Trend II: More older Customer retention Low-cost sourcing Focusing strategy Focusing strategy Focusing strategy
vehicles in use strategy
Trend III: Internet Internet-based Active internet- Internet-based Brand-supported Ensuring attractive
exchanges service processes based marketing of marketing (search Internet presence positioning in the
parts engine optimisation/ exchange
placement)
Trend IV: Forward strategy/ Framework Framework Framework Partial framework
Intermediaries framework agreements agreements agreements agreements
agreements (specialists)
Trend V: Hybrid strategy Hybrid parts pricing Focusing on price- Focusing on price- Focusing on price-
Polarisation of strategy oriented groups of oriented groups of oriented buyers
customer segments buyers buyers (independent
workshops)
Trend VI: The Cooperation Expanding system Expanding service Expanding range of Ensuring access
connected car strategy competence range accessories to technology/
(portable terminal expanding service
devices) range
Trend VII: E-mobility Establishing new Securing technical Securing technical Ensuring access to Ensuring access
business models expertise expertise technology/ to technology
qualifications
Trend VIII: Active network Making soft Active network and Active network Consolidation
Consolidation in adaptation franchises more consolidation strategy strategy
aftersales attractive strategies

Figure 65: Strategic options in the aftersales market of the future


Source: Institut für Automobilwirtschaft (IFA)

88
6. Conclusion and prospects: new rules of play − old players?

A retrospective view of the service market over a longer period reveals a


development that is evolutionary rather than revolutionary. Booming new car
sales put the workshop business in the shade during the 1950s and 1960s.
Technical service was nothing more than "product support", a range of
services that aimed to support the sales of new vehicles as a "necessary
evil". Service did not become a differentiating factor among competitors until
the 1970s and 1980s, when it was identified as being an instrument that
could be used to retain customers. This was the time in which the widely
propagated idea that only the first car is sold by the new car sales
department and all subsequent ones by the aftersales service department
was coined. The revenue potential of aftersales was finally discovered with
the growing saturation of the new car market and it was then cultivated to an
increasing extent (Figure 66).

1950s/1960s 1970s/1980s 1990s/2000s


Strategic focus "Product support" Differentiation factor Cash cow

Market situation ¾ Seller's market ¾ Changeover from ¾ Chronic profitability


¾ Rapidly growing seller's to buyer's problems in the new car
vehicle populations market sector
¾ Diminishing ¾ Cross-subsidising
differentiation potential through service
among vehicles ¾ Deceleration of growth
in the service market
Customer world ¾ Less demanding ¾ Declining brand loyalty ¾ Growing price sensitivity
¾ Maintenance seen as a ¾ Increasing demands on in customers
"necessary evil" vehicles and service ¾ Very demanding
¾ High level of
acceptance for repairs
Competitive ¾ Low competition ¾ "Peaceful" coexistence ¾ New suppliers emerging
situation intensity between authorised and expanding
and independent ¾ More intense
workshops competition

Figure 66: Car service sector undergoing change


Source: Institut für Automobilwirtschaft (IFA)

All of this took place within the framework of a relatively stable service
format, which is described above under the heading "all-round" service.
Increasing pressure in the market and among competitors, as well as new
technologies in the vehicle, are in the process of changing the rules of play in
the aftersales business. The "predatory competition" scenario is forcing
companies to adopt new strategies. This means, for example, that the old
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distinction between "authorised" and "independent" markets is gradually
becoming obsolete. The car manufacturers are serving the "independent
market" to an increasing extent in order to safeguard their parts business in
the light of an ageing vehicle population. And what distinguishes a brand
workshop with service contracts for two, three or more brands from the
franchise partner of a workshop system? The "independent" market is
changing as well, however: workshop systems and chains develop their
networks of branches on the basis of clearly defined standards. Car
dealership and customer loyalty programmes are become matters of course
to an ever-increasing extent, even in the independent market.

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. The strategic radar of every market player
must be realigned with the changing customer structures and changing
customer behaviour.

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.

There is only a sketchy outline of who these new players might be at present.
They will almost certainly be companies from the IT and communication
technology sectors, who are gaining access to the "intelligence" in the vehicle
to an increasing extent. The electricity supply companies will certainly not
want to merely perform the role of power suppliers when it comes to the

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subject of electromobility either. Charging station business might enable
them to access service-relevant vehicle data.

The number of market players who are currently active in the aftersales
sector is declining and the survivors must be prepared for the arrival of new
competitors. The same old question will pose itself: confrontation or
cooperation? There are many arguments in favour of a cooperative strategy
because the new players have competence in areas that the established
players are rarely able to master themselves, if at all. One thing is for sure:
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.

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