This is the seventh and final article in an exclusive series from automotive consultant James Carter, offering a unique look at some of the latest innovations in the automotive world, how they work, how they’re evolving, and what they mean to the aftermarket.
By James Carter
“Your {insert OEM} deserves {insert OEM} parts and service.” That’s been the rallying cry of Original Equipment Manufacturers (OEMs) for decades.
Got a Ford? they ask. It needs Ford parts, they say.
Driving a Toyota? Only Toyota parts will do.
And, indeed, most automotive service providers (ASPs) view their biggest competitor to be the OEM dealerships. So, it’s worth looking at how dealers are positioned as we prepare to enter the world of ‘New Mobility’ with its connected, autonomous, shared, and electric (collectively known as “CASE”) vehicles.
There has been a recent push for dealers in Canada to upgrade their facilities. In many cases it was the right move too because there were some pretty awful facilities out there. But the level and expense of the new facilities has been sometimes quite staggering. Even a dealership in a town or small city (say 30,000 to 50,000 people) could be asked build a store between 20,000 and 30,000 square feet. The cost of such a project – even before the purchase of land – could easily be $8 to $12 million. Add in the value of the land, which in Toronto or Vancouver is eye wateringly high, and you’ve got a serious bill that’s going to take a very long time to pay off.
When some dealers baulked, the OEMs used psychology to move their agenda forward.
“Your facility should be a reflection of who you are. You’re a successful business person, a pillar of the community. You sell the best brand in town. Certainly you deserve a facility to match your prestige.”
When that didn’t work, more obvious arm twisting was called for, often with a carrot and stick approach.
“Sorry, even though you were at 120% of target, you’re not entitled to your parts and service bonus this year. Only those with facilities at ‘standard’ are entitled to it now.”
So, if you’re building a fancy new dealership facility, spending tens of millions on it and paying it off over the next 20 years, wouldn’t it be worthwhile having a look at what the business will look like in 20 years? You’d think so.
A few months back, I was contacted by a dealer principal in Mississippi who owns two large stores, one a Korean OEM, the other Japanese. The OEMs were knocking on his door to upgrade the facilities. Now, John is a student of the industry and has been carefully watching as New Mobility first appeared on the horizon. He began to realize that the affects to dealers were potentially much greater than had been talked about. Worried that a large outlay in a new facility may be potentially a bad investment in the era of New Mobility, he approached one of the vice presidents of the distributor he operated under.
“You’re a dealer, you’ll be fine,” was the response.
To him, that response was a sign that OEMs do not have their eye on the medium- to long-term future when it comes to the sales and marketing of their products. Their advice and direction might not line up well with the prospects of New Mobility. It certainly didn’t line up well with the ideas that the same company was promoting about transportation in the future.
So why does all this matter? It’s all about whether a dealer can pay back a massive loan for their gorgeous new facilities. CASE vehicles have the potential to dramatically affect all three of the major revenue sources for a dealer: sales, parts, and service.
We know that electric vehicles require much less servicing than their traditional counterparts. Renault states that its EVs cost 50% less to maintain. Look at the owner’s manual for GM’s new Bolt which specifies that the car only needs inspections, tire rotations, and the occasional cabin air filter for the first 220,000km. This means that 50% or more of service revenue is gone!
What about parts? Autonomous vehicles tend not to crash, and recently KPMG released a study that OEMs in the U.S. will see a decline in parts revenue from collisions of 48% between 2015 and 2030 due to autonomous vehicles and collision avoidance technology. Almost 50% of parts business gone!
And sales? Well, this department at a typical dealership is not known for profitability. So when fleets come to dominate the landscape with taxi-bots, dealers will see tiny margins, typical of the dealer cost plus $200 they would see today on rental deals. The difference is there will be few private buyers to rectify this margin problem.
It is becoming clear that dealers are going to have major revenue challenges in the era of New Mobility. This at a time when they need to pay off their extravagant building investments. Clearly there’s going to be very significant industry upheaval in 10 years time.
Yet if you ask most dealer principles how they see New Mobility impacting them in the future, most will tell you, “People will always need to buy and maintain their cars. We’ll be fine.”
No, actually they won’t.
So where does this leave aftermarket ASPs? Not in such a bad spot actually. Sure, ASPs will be impacted by the reduction in the need for servicing created by the growing popularity of electric vehicles, and private customers coming through the door will be much fewer. But there are three reasons why the aftermarket is well positioned.
1) Awareness. In stark contrast to OEM dealers, the aftermarket seems to very aware of upcoming change. When I gave a recent speech for AIA Canada at their Knowledge Information Series on industry disruptors, we conducted a short survey of attendees. We found that 87% of those attending believed that EVs would have a significant impact on their business. We also found that 76% of those attending believed that they would be significantly affected by autonomous vehicles. Clearly the antennae are up for ASPs, and they’re expecting structural change soon. Awareness is the key to survival in technological disruption, and the aftermarket as a whole is thinking ahead.
2) Cost structure. Generally ASPs have rather more modest establishments than dealers, which puts them at a major cost advantage. No need to milk your customers to pay for 20,000 square feet of marble tiles. In the world of taxi-bots, this will be a major advantage when pitching for business to cost-sensitive fleets.
3) Timing. The automotive aftermarket generally doesn’t see vehicles until they’re outside the warranty period. This gives the opportunity to better prepare for the needs of vehicles in New Mobility. Dealers and OEMs, who will be on the cutting edge of the technological revolution, can make the mistakes and the aftermarket can focus on the learnings… and then adapt to them.
All this means that a well-informed ASP could prepare for this type of structural change early and begin to create a lucrative business around servicing, cleaning, and charging taxi-bots. But, I hear you say, won’t the OEMs lock the aftermarket out of the software and electronics? There’s no doubt that this is a very real threat, but there are now trends toward following the open source idea that has been pioneered in software development. Companies like OS Vehicles and Local Motors, which have flexible, low-cost manufacturing ideas, are an open book, meaning that people can take their designs and improve them to reflect their needs.
Even traditional OEMs are seeing the potential in open source. In a joint project with Renault Nissan, OS Vehicles has completely open sourced all the development for its small electric commuter, the Twizy. This way of thinking has great potential for the development of taxi-bots, and it also means that the aftermarket is very well positioned to service, maintain, and even improve on these vehicles.
Awareness, appropriate cost structure, and timing all means that while the automotive aftermarket will go through a period of very significant disruption, canny operators have the potential to be well positioned for success in the long term future.
It is up to each individual operator to make this happen, though. And in these early stages, the aftermarket does seem to have its ducks in a row.
So, here’s to another 100 years of opportunty and success!
James Carter is principal consultant at Vision Mobility, a Toronto-based consultancy. You can reach him at jcarter@visionmobility.ca. Click HERE to follow James’ insights on LinkedIn.
https://www.linkedin.com/in/james-carter-2935a65/
Leave a Reply