Part 7 in a series by James Carter
Twenty years ago, life was a lot simpler. If you wanted coffee, you dropped by Tim’s and ordered a double-double. Need milk? The process was as simple as dropping by the supermarket and scooping up a carton. And if you needed transportation, depending on your budget and time requirement, you bought a car, grabbed a rental, hailed a taxi, or hopped on a bus.
In the intervening years, the world has changed spectacularly. Coffee culture has caught the public imagination and the lexicon of ordering a decaf-almond-milk-caramel-macchiato-frappe has entered into our conscience. Milk? Well, now you have almond, soy, homo, semi skim, skim, and a bunch of others that come from who-knows-what plants, animals or sub-atomic processes. What’s more, you can have it dropped off at your door through on-line ordering!
And transportation has changed radically too. We think nothing of order a ride-hailing service, like Uber or Lyft, from our phones and have it arrive in just a few minutes. Car sharing on city streets, such as Car2Go and Communauto, has become common in major centres. And new subscription services can put a car in our driveway with an all-in payment and no commitment, allowing us to take whatever car we desire whenever we want it. You want a commuter car during the week, an SUV to take to the weekend cottage trip, and a sports car for that hot date? You got it!
We’re also starting to see the introduction of dockless bike sharing like Ofo, electric scooter sharing (Lime and Bird) and other transportation ideas that make getting around the city much easier. And, if that’s not enough, there’s talk of taxi air drones, like the one that pioneered in Dubai recently, or perhaps the ultimate revolution in future transportation – the taxi-bot.
What we’re witnessing is what I call the “greying out” of industries. This occurs when choice greatly proliferates, and new products or services bridge gaps that previously seemed a mile wide. Previously, taxis, buses, rental companies, and dealerships were all completely different verticals that operated with minimal crossover, but today they’re all part of one giant inter-connected ‘mobility’ industry. Before the choice was easy; now it’s far more complex. Before we thought about siloed, vaguely related transportation industries. Today the influence and inter-relationship is great.
Mix in the growing influences of social media (brought to us on our constant companion the smart phone), and you have a customer base that expects radical choice at their fingertips. Customer ‘friction’ on every part of our daily lives has slowly been reduced, time savings have been created, and knowledge and choice has become an expectation.
But the question remains, how has the automotive aftermarket been impacted? The simple answer is there hasn’t been any outsized disruption to date, and the industry has continued to evolve in its process of repairing and servicing vehicles, which are almost exclusively powered by internal combustion engines. Sure, we’re seeing better vehicle monitoring, new on-vehicle technologies, smarter software and other improvements… but nothing really substantial. What’s more, the industry remains relatively siloed – there hasn’t been a lot of near industry change to threaten the traditional way of business; and the aftermarket tends to do well in customer satisfaction studies, reducing the likelihood of friction driven customer change.
So, will our industry “grey out” like so many others? Or will we still be doing our thing 20 years from now? To answer this, we can point to a few things.
Firstly, transportation maintenance and repair will always be needed.The processes and vehicles will change, but this top level requirement won’t. If something moves, then something wears, which ultimately means maintenance or repair.
Secondly, we need to figure out what we’ll repair and who our customers will be. It is here that the “greying out” of choice really starts to impact the automotive aftermarket. More choice and flexibility in our transportation most naturally lends itself to fleets offering different, flexible on demand and predictive services for customers. This means a shift from traditional B2C customers, towards B2B. This has pluses and minuses, being a need to have minimum standards to meet public safety liability exposure, but that fleets will likely squeeze margins on a per vehicle basis with volume work. As the aftermarket typically has much lower overheads that their direct dealership competitors, this actually looks like a significant opportunity
The move towards fleets also means a move towards lowering operating costs, and electric vehicles play a trump card here. Renault says that their EVs have 50% the maintenance cost of an equivalent ICE vehicle, and this is something that no fleet will ignore. As problems surrounding EVs are solved, like range, charging times and battery cost, you will see a big shift towards EVs in large fleets. Unfortunately, a 50% reduction in maintenance costs eventually mean a 50% reduction in revenue to those who derive their business from maintaining and fixing vehicles. This is a critical point that the industry as a whole, as well as individual businesses, must carefully think though.
However, the move to electric has spawned a whole raft of new micro transit options, like bikes and scooters, all of which need maintenance and repair. It would seem wise for any business in the automotive aftermarket, particularly ones located near city centres, to broaden their customer base to include repair and maintenance of these vehicles.
Thirdly, we need to look to adjacent industries,most particularly OEM dealerships. Dealers rely on low-margin vehicle sales to sell high-margin parts and service work; however if the afore-mentioned dealership cost structure is not competitive, then there will be problems. What is also apparent is that low cost non-name brand vehicles from China or India will become much more popular as the impact on brand deteriorates from ownership reduction. Navya, Local motors and REM are all leaders in autonomous shuttle production, but I bet you’ve heard of precisely none of them. Such brands, and those from China, are unlikely to want to go through the hassle and expense of establishing a large dealer network, so there is a huge opportunity to secure the maintenance requirements of such vehicles, especially through already well known automotive repair brand names.
So, for the automotive aftermarket, if the industry can deal with the move to electric and a changing customer base, then there’s likely to be plenty of future opportunity. However, adjacent industries, new technologies and customer demand are changing fast.
This means that smart operators will need keep a very careful eye on what’s happening – not just in the automotive aftermarket, but in transportation as a mega-industry.
James Carter is principal consultant at Vision Mobility, a Toronto-based consultancy. You can reach him at firstname.lastname@example.org. Be sure to follow James’ insights on LinkedIn.