AMStudie en 1509

8/6/2019 AMStudie en 1509

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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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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

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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

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InEURW ar tu ngsau fwan d W ar tu ngshufigk ei tMaintenance costs Maintenance frequency

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Figure 3: Cost per maintenance event and maintenance frequency


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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

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Repair costs Repair frequency

Figure 4: Cost per repair event and repair frequency


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

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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

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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


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


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


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


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


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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24

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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26

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.



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


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


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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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33

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)


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)


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


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
http://www.my-hammer.de/http://www.my-hammer.de/http://www.my-hammer.de/http://www.my-hammer.de/http://www.blauarbeit.de/http://www.blauarbeit.de/http://www.werkstattsuche.com/http://www.werkstattsuche.com/http://www.werkstattsuche.com/http://www.blauarbeit.de/http://www.my-hammer.de/


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35

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%.
http://www.autoreparaturen.de/http://www.autoreparaturen.de/


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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


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


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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44

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


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

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