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TRANSCRIPT
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A Turning Pointin Automotive Service
A study commissioned by Automechanika,Messe Frankfurt Exhibition GmbH
Prof. Dr. Willi Diez
September 2010
Institut fr Automobilwirtschaft (IFA)at the NrtingenGeislingen University (HFWU)
http://www.ifa-info.de
http://www.ifa-info.de/http://www.ifa-info.de/http://www.ifa-info.de/ -
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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
is strictly prohibited and punishable by law.
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Table of contents
Summary of key results1. Introduction: Innovative service worlds................................................. 82. Situation and development trends in the automotive service market11
2.1 The service industry is reaching the limits of growth ..........112.2 Increasing workshop rates and parts prices.........................132.3 Competitive situation: from peaceful coexistence to
predatory competition..........................................................152.4 Dealer satisfaction in aftersales business.............................202.5 Political framework: aftersales focus of BER........................232.6 Deceptive profit........................................................................242.7 Interim conclusion I: Automobile service from the
cornerstone of profits to Achilles heel? ................................253. A turning point in aftersales eight trends characterise the market of
the future .................................................................................................. 263.1 Trend I: The service market will develop negatively.............263.2 Trend II: Older vehicles continue to gain in importance ......303.3 Trend III: Internet exchanges direct customer flows ............313.4 Trend IV: Intermediaries will change the market structure ..353.5 Trend V: Polarisation of customer segments........................393.6 Trend VI: The connected car...................................................423.7 Trend VII: E-mobility ................................................................453.8 Trend VIII: Consolidation in the aftersales sector.................483.9 Interim conclusion II: Trends in aftersales business - the
winners and the losers ............................................................504. Results of the IFA panel: challenges and opportunities in aftersales
business................................................................................................... 514.1 Objectives and methods .........................................................514.2 Development of aftersales business......................................53
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4.3 Assessment of the competitive situation ..............................544.4 Future opportunities in the aftersales sector........................564.5 Future risks in the aftersales sector ......................................564.6 Fields of action in the aftersales sector.................................574.7 Interim conclusion II: Strengthening the strengths a
promising strategy? ................................................................585. Strategies and fields of action in the service market of the future.... 60
5.1 Innovative service formats......................................................605.2 Challenges, strategies and fields of action for the players in
the service market ...................................................................655.2.1 Car manufacturers .........................................................655.2.2 Authorised dealers and workshops................................715.2.3 Automotive suppliers......................................................765.2.4 Parts wholesalers...........................................................785.2.5 Workshop systems.........................................................795.2.6 Workshop chains and specialised markets ....................815.2.7 Independent workshops.................................................845.2.8 Specialists......................................................................86
5.3 Interim conclusion IV: Strategic options in the aftersalesmarket of the future..................................................................88
6. Conclusion and prospects: new rules of play old players?............ 89
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Summary of key results
A new era has dawned in the aftersales market. Influenced by new market
and competitive conditions, new and growing customer requirements and
ongoing technological development, the players in the service industry will
have to reorient themselves in order to survive. At the same time, a long-
term, irreversible consolidation is inevitable in aftersales in the coming years.
Eight trends characterise the service market of the future:
Trend I: Declining market volume
Considering the stagnating number of cars in Germany in the mid to long
term and an additional decline in maintenance and repairs, aftersales
business will shrink 6.3% to 13.2% by the year 2025. The saturation of
the German automobile market, which has been evident for some time in
the new and used car markets, has now reached the service industry.
Trend II: More older vehicles in use
Germanys scrapping premium programme in 2009 led to approximately 2
million vehicles older than 9 years being eliminated from service. This
represents a sales loss of around 700 million euros for the service market.
The scrapping premiums however did not reverse the trend towards older
vehicles, but simply interrupted it. Technical advances, fewer miles being
driven and changed customer behaviour will again significantly increase
the lifespan and length of use of vehicles in the coming years.
Trend III: Internet exchanges
The importance of the internet in service will continue to increase in the
coming years. Online repair exchanges in particular will grow in
importance and direct customer flows in much the same way as in todays
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.
Trend IV: Increasing importance of intermediaries
The shift of demand from private to commercial customers which has
been observed in the German market for several years will increasingly
affect aftersales business. Framework agreements will give leasing and
fleet management companies in particular an increased say in which
aftersales suppliers get how many cars and under what conditions in their
shops. The trend using instead of owning" will position additional
innovative mobility service providers between the shop and the customers
in large urban areas.
Trend V: Polarisation of customer segments
The trend of erosion of the mid-range observable in many areas will also
lead to a polarisation of customer requirements in the aftersales domain.
Well-to-do private customers with a strong affinity for cars will pose highdemands on quality, service and convenience, while more price-
conscious drivers with a small budget will lead to the emergence of
discount-style service formats.
Trend VI: The connected car
Automotive systems will increasingly open up for new players thanks to
increased use of portable end-consumer devices. More and more vehicle-
related information is provided independently of the vehicle, which means
that companies from outside the industry in the field of information and
communication technology will have a growing influence on the choice of
service provider.
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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 modelsmay apply for electric automobiles, access to aftersales for drivers of
these vehicles will change. The personal relationship between drivers and
their workshops will be further weakened when new, user-oriented
business models emerge in the field of e-mobility.
Trend VIII: Consolidation in aftersales
The declining market and the described structural changes in aftersales
will lead to a significant consolidation in the automotive service industry. A
considerable increase in the number of automotive shops going bankrupt
can already be observed in recent years. This figure is expected to reach
an all-time high in 2010, with 480 shops becoming insolvent. By the year
2020, the number of car repair establishments is likely to decrease by a
good 25% to only 32,850 workshops.
These trends tend to favour independent service providers not bound to a
specific manufacturer. The loss of the direct initial customer contact
represents a threat to the market position of automobile manufacturers and
their contract partners which should not be underestimated. Market
participants that are not affiliated with a certain manufacturer on the other
hand can benefit from the shift in market structures towards older vehicles
and intermediaries.
An online, explorative survey of authorised dealers and workshops
conducted as part of the IFA Dealer Panel attempted to identify the
opportunities, risks and fields of action for the aftersales business:
The authorised dealers and shops surveyed see the increasing
technical complexity and the growing number of new technologies in
vehicles as the key opportunities for the future of aftersales. Only one-
third consider the trend towards the electric car as an opportunity for
the future.
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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 warseven in aftersales.
The primary fields of action of surveyed authorised dealers and
workshops are training employees, increasing customer satisfaction
and actively marketing services to ensure the shop is used to capacity.
Other important fields of action include optimising shop processes,
purchasing parts and accessories more inexpensively and reducing
shop costs.
The survey shows that the authorised service providers have a relatively
good understanding of the risks and challenges in the aftersales market of
the future. It also shows their high flexibility and focus on technically complex
shop work. The further qualification of shop employees is accordingly high on
the agendas of surveyed companies.
To counteract the described development trends, in the future it will be
necessary to offer more differentiated service formats that better cater to
specific customer groups and needs. Todays automobile service follows the
principle of all-round service, which is increasingly proving to be non-ideal
in meeting specific customer needs. Based on the trend analysis, the
following four promising service formats can be identified for the future:
The premium service provider with a strong focus on well-to-do private
customers with an affinity for cars, as well as user choosers from the
commercial domain.
The service discounter, whose systematic menu pricing appeals to
price-sensitive customers with a small mobility budget.
The service factory, offering standardised maintenance and repairs
with guaranteed quality to intermediaries via a largely internet-based
customer process.
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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 andimplement them in a viable business model.
These trends mean that the established players will have to adjust their
market and competitive strategies in the following ways:
Thanks to their domination of the authorised system and their size and
financial resources, car manufacturers have a wider range of strategic
options compared to other players in the service market. Additionally,
automobile manufacturers can further develop into mobility providers,
thereby expanding their basis for creating value. This could help them
to counteract the growing power of intermediaries in aftersales and
thus secure their parts sales.
Because authorised dealers and shops are bound to one or more
manufacturers, they have less strategic room for manoeuvre. The
main concern of this supplier group is to strengthen its position as the
brand champion in their respective regional or local competitive
environment. This does not necessarily mean a single-brand strategy;
it could also involve acting as a multiple-brand dealer or service
partner.
The biggest problem of automotive suppliers is typically a lack of direct
access to end consumers. Because parts wholesalers act as a kind of
gatekeeper for suppliers, securing shelf space in the wholesale
product range is of tremendous strategic importance. This can be
achieved by focusing on system components which are lessinterchangeable with the competition and by increasingly using low-
cost locations to remain competitive in simple parts.
The wholesale parts market in Germany is considered to be
oversaturated, so that an active consolidation strategy in this domain
is a key strategic option. Furthermore, forward integration through
expansion and enhancing brand awareness through shop systems
play an important role in the wholesalers strategy portfolio.
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Shop systems should increasingly emphasise their value for money in
the future and take advantage of their multi-brand capability as a
strategic strength. This also provides them with special opportunities
to work with intermediaries.
Workshop chains and specialised markets are considered classic
aftermarket discounters and should maintain this positioning.
Interesting opportunities will open up for these suppliers in the service
factory format, which requires a high degree of process
standardisation.
The small size and limited financial resources of independent
workshops leave very little room for strategic manoeuvre. An important
strategic option for this supplier group is to affiliate with an internet-
based repair exchange, where independent shops can showcase
themselves as price-effective local alternatives.
Thanks to their distinctive profile as experts, specialists have excellent
opportunities in business with intermediaries. Beyond this, they must
expand their range of services to tap customer potential and increase
the value created per customer.
Increasing market and competitive pressure combined with new automotive
technologies are changing the rules of play in the aftersales market. The old
distinction between the authorised and independent markets is becoming
increasingly obsolete. Ultimately it is customers who are driving forward
these changes. The growing share of users instead of owners, the
increasing importance of large, centrally managed vehicle fleets, and the
growing demands of private customers with respect to quality, convenience
and price are forcing all players in the aftersales market to have a more
professional market profile and customer-relevant processes.
All participants in todays 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 toinclude 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 Zrcher 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 offices 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 passengers 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 doesnt 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 ones 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, todays 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, perhapsautomobile 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 theservice market in past decades.
0
5
10
15
20
25
30
35
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Servicevolum
esinbillioneuros
Wartung Reparatur (Verschleiteile) Unf allinstandsetzung
29.8 30.230.8
34.8
29.430.4 30.9
31.133.2
34.533.4
34.8 34.135.5
34.5
Maintenance Repair (wearparts) Accident repair
Figure 1: Service market volumes (incl. replacement parts)
Source: DAT/ZDK/Institut fr 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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75
80
85
90
95
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.
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
0
50
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150
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1992
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2009
InEURW ar tu ngsau fwan d W ar tu ngshufigk ei tMaintenance costs Maintenance frequency
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
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).
0
0,2
0,4
0,6
0,8
1
1,2
0
50
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1992
1993
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2009
InEUR
Reparaturaufwand Reparaturhuf igkeit
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Repair costs Repair frequency
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).
102.1
104.7106.8
109.1
111.2113.3
117.9
120.9
125.1127.9
102.0 103.4
104.5106.2
108.3110.0
112.5
115.4115.9
118.6
100102
104
106
108
110
112
114
116
118
120
122
124
126
128
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1. Hj2010
2000index=100
Wartungs-und Reparaturarbei ten Verbraucherpreis-IndexMaintenance and repairwork Consumer price index
1st halfof2010
Figure 5: Development in prices for maintenance and repair work
Source: Institut fr 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 thanoverall 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.
102,0
103,4104.5
106.2
108.3
110.0
112.5
115.4
115.9
118.6
101.3102.2 103.1 103.4
104.1
106.1
109.7
112.0
114.5
117.4
100
102
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108
110112
114
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1. Hj 2010
Index2000=
100
Verbraucherpre is-Index Ersatztei le und Zubehr Consumer priceinde x Replacementparts and accessories
1st halfof2010
Figure 6: Development in prices for replacement parts and
accessories
Source: Institut fr 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 toconsolidate 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
establishments2005 2010 Change in %
Primary and
secondary dealers
Branch shops
Service shops
15,087
156
9,324
13,362
479
11,785
-11.4
+207.1
+26.4
Total 24,567 25,626 +4.3
Figure 7: Authorised service establishments
Source: Institut fr 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).
8001,100
1,500
1,8002,200
0
500
1.000
1.500
2.000
2.500
2006 2007 2008 2009 2010
Number
1,000
1,500
2,000
2,500
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 haveincreasingly attempted to penetrate segments II and III, in particular through
customer loyalty programmes such as flat-rates that bind owners to a specific
shop for up to four years. But car manufacturers have also become more
flexible in parts pricing, at times going so far as to establish a second range of
more cost-effective parts (Figure 9).
Brand Name of 2nd
parts range
Available
since
Cost savings Product groups
Citron EUROREPAR 2006Approx. 25% Primarily wear parts
Ford Motorcraft The 1980s 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 andhigh-priced replacement parts
Figure 9: 2
nd
parts range of selected car manufacturersSource: 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 2005in 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
2005 2009
Other shops
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 fr Automobilwirtschaft (IFA)
Interestingly, the importance of this segment in particular has grown in recentyears. 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).
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Vertragswerkstatt der eigenen Marke sonstige Kfz-WerkstattAuthorised shops of ownmanufacturer Other automotiveshops
Figure 12: Market share of maintenance and repair work
Source: DAT Report 2010
Increasing competition in the parts business also plays a significant role inthe 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.
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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 fr 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
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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
cars2.80 2.80 2.90 2.86 2.93 2.91
Average satisfaction in the aftersales domain 2.99 2.89 2.97 2.96 2.93 2.87
Average satisfaction overall 2.93 2.87 2.91 2.90 2.83 2.77
Figure 14: Satisfaction with the car manufacturer or importer in the
aftersales domain
Source: Schwacke MarkenMonitor 2010
Satisfaction of authorised dealers is also below-average when it comes to
manufacturer pricing for parts threatened by competition. This is apparently
another critical issue for authorised dealers competing with independent
service suppliers.
When ranked according to brand, Toyota dealers lead the top 10 list of
satisfaction with manufacturers, but only just ahead of BMW dealers, whose
score increased significantly in the past year. Positions 3 and 4 are held by
Mercedes and Audi, two additional premium brands. The rear of the ranking
is brought up by the two French manufacturers Peugeot and Renault (Figure
15).
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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.
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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 surpriseconsidering 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.
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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 aftermarketremain 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 Germanys 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.
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Source of contribution margin ( in %) 2009 2008
New cars 43.8 28.8
Used cars 0.8 4.9
Replacement parts / accessories 28.2 33.2
Workshop 23.3 28.0
Other departments 3.9 5.1
Total contribution margin 3 100.0 100.0
Contributionmargin3 of each
department revenue (in %)2009 2008
New cars 4.2 2.7
Used cars 0.2 0.9
Replacement parts / accessories 16.4 15.7
Workshop 18.5 17.7
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 fr 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 todays 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?
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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 varioustechnological, economic and societal factors. Is the aftersales business
facing a major turning point?
3. A turning point in aftersales eight trends characterise the market
of the future
3.1 Trend I: The service market will develop negatively
Purely mathematically speaking, the development of the service market is
determined by two factors:
The number of existing passenger and estate cars and
The annual maintenance and repair demand per vehicle.
Increases in hourly rates and prices for replacement parts must also be takeninto consideration.
The Institut fr 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.
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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.
JahrNumberof existing
cars 1 (in millions)
Annual repair and
maintenancedemand
per car (hrs.)
Total potential forrepair
and maintenance work2
(mill. hrs.)
Average hourlyrate()
Market potential
formarket sales2
(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
model
Aggressive
model
Conservative
model
Aggressive
model
Conservative
model
Aggressive
model
Conservative
model
Aggressive
model
Conservative
model
Aggressive
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 vehicles2) Only maintenance and repair, no body/paint work, no warranty/guarantee/goodwill work, without VAT, without sales of parts and accessories
Assumptionand results of theprediction
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GesamtmarktfrReparaturund
Wartungsarbeiten
inMio.S
tunden
Service marketprediction(hours)
125
135
145
155
165
175
185
195
205
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
Defensiv-Szenario
Offensiv-SzenarioAggressive scenario
Totalmarketforrepairsand
maintenancein
mill.hours
Conservative scenario
GesamtmarktfrReparatur-und
WartungsarbeiteninMio.
Service marketprediction (wage hours in )
9.500
10.000
10.500
11.000
11.500
12.000
12.500
13.000
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
Defensiv-Szenario
Offensiv-Szenario
Totalmarketforrepairsa
nd
maintenanceinmill. Aggressive scenario
Conservative scenario
Figure 18: IFA prediction for the service market
Source: Institut fr 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.
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Figure 19: Discount mania in aftersales
Source: Institut fr Automobilwirtschaft (IFA)
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3.2 Trend II: Older vehicles continue to gain in importance
The average age of existing vehicles in Germany has decreased followingjunking 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.
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
>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 fr 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
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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
9.30 mill.
9.25 mill.
14.22 mill.
2006
9.32 mill.
8.92 mill.
Segment I: 4 years
Segment II: 5 7 years
Segment III: 8 10 years
12.8 mill.
Figure shows existing cars in individual age segm ents as of 1 January of the year in que stionExisting cars incl. temporarily deregistered vehicles
2003
9.84 mill.
8.05 mill.
13.44mill.
11.0 mill. 15.05 mill.
Segment IV: >11 years
13.33 mill.
9.01 mill.
8.07 mill.
13.78 mill.
15.83 mill.
2009
Figure 21: Age structure of existing vehicles in Germany
Source: KBA/Institut fr Automobilwirtschaft (IFA)
This development poses both opportunities and risks for service suppliers:
The opportunity lies in providing not only services to improve the
functionality and reliability of older vehicles but also to retrofit and
modernise individual technical components.
The risk in this development is that customers will migrate to the do-it-
yourself segment, which normally means the permanent loss of the
customer.
In light of anticipated medium and long-range stagnation in new car sales,
the aftersales market must definitely focus more on existing cars in the
future, whereby competition for segments II and III in particular is likely to be
fierce amongst authorised and independent service providers alike.
3.3 Trend III: Internet exchanges direct customer flows
The internet will take on a greater role in information and thus customer
acquisition in the future. It can be expected that drivers will increasingly use
the internet to find a shop not only for buying parts and accessories but also
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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
in accidents
Currently still free for private persons and
workshops, but base fees and
commissions (for bidders and customers)
have been announced for the future.
Driver enquiries free.www.autoreparaturen.de Job descriptions for all types of car
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.
Free for private users.www.motoso.de Workshop finder (address
database)
+ services finder (advertised fixed
price offers)
+ customer job descriptions for all
types of repairs
Free for workshops for 2 months, thereafter
fee required according to current price list.
eBay Motors Workshop finder (address
database)
+ services finder (advertised fixed
price offers)
Free for searchers, listing shops in shop
finder also free.
www.autoservicefinder.de Workshop finder (address
database)
Free
www.freiewerkstatt24.de Workshop finder (address
database)
Free
Free for drivers.reparaturFUXX Workshop finder (address
database)
+ services finder (advertised fixed
price offers)
For workshops: shop finder only is free,
otherwise various packages for full use for
EUR 5.00, EUR 2.90 or EUR 78.90.
http://www.repcar.de/http://www.repcar.de/http://www.autoreparaturen.de/http://www.autoreparaturen.de/http://www.motoso.de/http://www.motoso.de/http://www.autoservicefinder.de/http://www.autoservicefinder.de/http://www.freie-werkstatt24.de/http://www.freie-werkstatt24.de/http://www.freie-werkstatt24.de/http://www.freie-werkstatt24.de/http://www.freie-werkstatt24.de/http://www.autoservicefinder.de/http://www.motoso.de/http://www.autoreparaturen.de/http://www.repcar.de/ -
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+ customer job descriptions for all
types of repairs (reverse auction)
Job posters: completely free.www.myhammer.de Reverse auction
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.
Job posters: completely free.www.blauarbeit.de Reverse auction
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 fr 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 connectshops 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 drivers 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
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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. Theiruser 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 notonly 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%.
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20%
30%
40%
50%
60%
70%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Vertragswerkstatt der eigenen Marke sonstige Kfz-WerkstattAuthorised shops of own manufacturer Other automotiveshops
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%.
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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 accidentdamage. 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
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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 todo 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).
- in % -All
respondents
Age group Place of residence
18-34 35-54 Over age 55 City Country
I will do without a car oram considering it in thenext 6-12 months
29 35 27 24 31 26
Reasons:
Save moneyEcologicalreasons
8846
9050
9046
7730
8741
8952
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).
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Car sharing members
Car sharing vehicles
As of 1 Januaryof each year
Carsharingvehicle
s
Carsharingmembers
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).
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2.3
0.4
0.5
1.4
1.7
5.3
7.4
24.5
26.6
29.9
0 5 10 15 20 25 30 35
Sonstiges
Termineinhaltung
ffnungszeiten
Terminverfgbarkeit
Qualitt der Beratung
Schnelligkeit der Reparaturen/Wartezeiten
rtliche Nhe der Werkstatt
Qualitt der Teile/Originalteile
Qualitt & Zuverlssigkeit der Arbeiten
Preisniveau
in %
Price
Quality and reliability of work
Quality of parts / original parts
Local proximity of workshop
Speed of repairs / waiting time
Quality of advisement
Appointmentavailability
Hours of operation
Meeting deadlines
Other
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.
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100
135
98 96
8882
75
Independentworkshop
500 675 491 478 442 411 375
Question: A workshop service that costs EUR 500 at an authorised VW shop would cost thismuch in a . shop, according to the car driver (index value / in )
Figure 28: Price perception of drivers depending on service
provider
Source: ABH Aftersalesmonitor
But one should not be too quick to generalise from these average values,
because the frequently cited phenomenon of erosion of the mid-range has
long since reached the automobile service market without the relevant
market players drawing the right conclusions. Authorised shops for instance
continue to offer a largely uniform level of service for their customers, without
considering whether certain services are even desired or whether other
target groups might want an even greater level of service. Workshop systems
and chains for their part attempt to upgrade their service programme without
realising that they may lose a share of their customers as a result, especially
the price-sensitive ones.
A McKinsey survey from 2008 identified five buyer groups with different
requirements for automobile service:
Demanding drivers
Premium service users
Car enthusiasts
Value for money seekers and
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Pragmatists.
A key characteristic differentiating these various groups is the significance of
price (Figure 29).
-62
-22
9
-7
38
35
-100 0 100
DemandingDrivers
20
3
39
-33
3
13
-50 0 50
PremiumService Users
22
-2
11
2
37
-3
-50 0 50
Car Enthusiasts
-25
6
-37
21
-32
16
-50 0 50
Value-for-Money Seekers
41
14
-11
8
-42
-49
-100 0 100
Pragmatists
Selection of shopisimportant
I lovecars
A low price is important
Special customerorientation is important
Local proximity of shopisimportant
Have littletime, doesntmatter which shop
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).
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House/Home
Control of home technologyMonitoring functions at
home
Office/Workplace
Phone and e-mailcommunications
Vehicle and fleetmanagement
Internet
Navigation/Trafficinformation
EntertainmentTravel management
Infrastructure/Car2Car
Emergency systems/emergency call
Proximity warning systemRoad surface
OEM/OES/Dealers
Service partner/Road assistance
Figure 30: Connectivity changes the IT structure in vehicles
Source: Institut fr 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, inparticular, 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.
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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 serviceprocess 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.
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Authorised dealer Data stored in the
vehicleAuthorised
workshop
Authorised dealer Information stored in
a deviceRecommended
workshops
Figure 31: Opening up the automotive system - consequences for
customer management in the aftersales sectorSource: Institut fr 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
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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.
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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 arealso building up the specialised
knowledge required to service the
electric motor and the battery
within the service companies. The
first specialised workshops arelocated in North-Rhine Westphalia,
for example. The German
automobile club ADAC is another
partner in the NRW pilot project,
which has trained its personnel toprovide a reliable breakdown
service for electric cars on the
roads within the pilot region.
Figure 33: RWE Mobility e-package with service promiseSource: 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
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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 andthis 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.
563
589 608
633
519546
571
687 690
319346 362 340
373
304
369
384
480
200
300
400
500
600
700
800
2002 2003 2004 2005 2006 2007 2008 2009 2010 *
Handel m.Kraf twagen Instandhaltung u.Rep.v.Kraf twagen
* Forecast
Trading in motor vehicles Motor vehicle maintenance and repair
Figure 34: Insolvencies in the automotive trade between 2002 and
2010
Source: Destatis 2010/Institut fr 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.
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50
60
70
80
90
100
110
80
100
120
140
160
180
200
220
1997 2000 2005 2009 2015 2020
Numberofvehiclesperwor
kshop
Numberofcarworkshops
VehiclesperWorkshopNumberofcarworkshops
Index Index
Figure 35: Development of the car workshops in Germany
Source: Institut fr 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.
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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.
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Numberoffacilities
Number
offacilities
Employees
Employees Employees Employees Employees Employees Employees Employees Employees
Workshop throughputs
Figure 37: Profile of the survey participantsSource: IFA Hndlerpanel 2010
4.2 Dev