If there’s a real game-changer that will truly alter the way the automotive aftermarket does business, it’s what’s called “Car as a Service” or CaaS.
CaaS is where people purchase the use of a vehicle as they need it, rather than own it. They can rent the vehicle on a one-off basis, or purchase a “subscription” which gives them ongoing access when they need it. It is definitely not like the traditional ownership model in general use today.
Using cars as a service has been around for many years in the form of taxis and rental cars. But it is now expanding dramatically, with things like ride hailing and car sharing. And as it grows in popularity, it is becoming extremely important in the transportation space.
The reason that CaaS is now flourishing is two-fold. New technology from smart phone apps has enabled easier access to these services. And the customer experience is getting better and better. These two things, combined with the demographic changes of urbanization and the reduced desire to obtain a driver’s licence at a young age, has also aided in their expansion.
But CaaS doesn’t necessarily have critical work load implications for ASPs – cars will still need to be serviced and repaired. In fact, it could be said it will need more frequent servicing since kilometer milestones will be reached much sooner. The big change is who the customer will be.
The fall out becomes:
How will you identify the new customers?
Will they require service and repairs done in the same way?
How will you communicate with them?
What things are they looking for from an ASP?
Is there any reason they wouldn’t simply to a dealership for service?
It turns out this new customer is already an automotive aftermarket customer. They are fleet owners. Fleets are ideally positioned to run CaaS operations as they can use their buying power to leverage purchase price, reduce operating costs, and quickly identify profitable business opportunities. In other words, it’s highly likely we will see ASPs move away from private customers to fleet business as the dominant revenue stream. Most ASPs tell me that today their revenue mix is approximately 80% private and 20% fleet, which aligns quite closely to Canada’s new car sales mix; however it is quite likely that in 15 to 20 years these numbers could be reversed.
More fleet business is, overall, a positive development for the automotive aftermarket. While fewer dollars will likely be earned per repair order, fleet work usually comes with a contract that guarantees business for a set period of time. Fleets also have a duty of care towards their drivers and customers, meaning they’re obliged to ensure that the vehicle is maintained properly and repaired promptly. Fleet owners can’t cut corners the way we’ve seen many private customers do.
Fleets are likely to be more price sensitive as they purchase large amounts of maintenance in one shot, however the automotive aftermarket has a key advantage: a much lower cost base than dealerships. Just look at those fancy facilities! You know all that infrastructure is being paid for by their customers.
Under the CaaS model, the automotive aftermarket may also see a lift from, of all things, OEM branding… or more specifically, a lack of interest in it. Why? Few people care what brand of taxi or Uber they get into, nor even what sort of rental or car share they use. If it’s a Mercedes, that’s very nice, but most people won’t pay extra for it. People care that they get to their destination in a safe manner, and that they’re looked after in their desired way. That includes entertainment, silence, and information access with no surprises! Above all, it must be cost effective.
Therefore, in a world where CaaS becomes common, and people don’t care much about brand, it leaves the door wide open for new entrants to the market, particularly from China, to be sold as white label products. As these manufacturers do not have a dealer base in North America, there’s a huge opportunity for ASPs, especially larger chains, to form alliances and work together for mutual benefit.
What’s the best way for ASPs to start? The first step is to cultivate and form alliances with fleets. We’ve already seen some businesses start this process. It might take some time, and it may require a specialised B2B development person, but it could pay off handsomely as we move into New Mobility and CaaS.
The second answer is less obvious, but just as important. Don’t give your customers good reasons to leave. This is where ASPs need to continue paying attention. Customer satisfaction and convenience are the key reasons people now prefer ride hailing over taxis. Will those be the reason they leave your business? Ask yourself; “How can I make things easier for my customer?”
Sure, it’s true that the automotive aftermarket continually tops OEM dealerships for customer satisfaction and customer experience, but OEMs are certainly making gains. Don’t let a silly mistake – like lack of attention or busy-ness – distract you from making your customer your number-one priority.
The third thing to consider is what happens to your customers once they take up a CaaS arrangement and stop using automotive aftermarket services – after all, they’re still your customers. You have two options: you could just let them leave (which seems like an awful waste), or you could diversify your business to try to retain them. Pairing up with a different but complementary business may also be smart way forward.
For instance, how about striking an agreement with a CaaS provider where you provide them with your client list and use their vehicles as loaners, in return for an exclusive service contract. That would be a mutually beneficial arrangement. You could also orient your business to offer other services aimed at the B2B customer, such as EV charging, cleaning, detailing, and vehicle recovery. You could come up with a compelling all-in-one package that raises eyebrows.
In summary, repair shops are very likely to see a movement in their main customer. They are very likely to go from predominantly B2C work to predominantly B2B work. This in itself is far from bad news for the automotive aftermarket, and it actually presents a host of new opportunities.
However, shops that aren’t on top of this shift will suffer quickly.
Start making plans today to attract new fleet customers. And even as you try to retain your traditional customers, be prepared to diversify into new areas.
The future of your business could depend on how you plan for radical changes in our 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.