UNIVERSITY OF THE AFTERMARKET: Seven Deadly Trends Facing the Service Industry

In today’s increasingly competitive aftermarket, the service dealer faces many unique challenges that parts suppliers don’t have. And to be a successful parts supplier to your customers, you need to be aware of these.

While there are a great many individual challenges faced by each repair garage, there are seven major shifts in competition and the economy affecting them all.

Trend 1: Shrinking Human Resources

Consider this: the service dealer is an endangered species! The professional technician is a graying talent pool with few young people entering the profession to replace retirees. Years of turning wrenches and standing on concrete has affected technician health in ways similar to health problems faced by office workers who deal with carpal-tunnel syndrome brought on by working with computers.

When these technicians move on for health reasons, there is a shortage of replacements to fill the open positions (estimates put this at 12,000 over the next two years in Canada). Young people who are interested in a technical career are being lured away by computer companies with promises of high-paying white collar jobs. As this situation continues, who do you think is going to be able to work on cars, and who would be buying parts from you?

Trend 2: Satellite OE Service

Beyond the technician crisis, there are threats coming at the dealer from both outside and inside the aftermarket. From outside the aftermarket, more OEM car manufacturers are considering building, or are building, freestanding repair facilities away from dealerships–so-called satellite repair facilities–to attract customers. Initially promoted as a customer service approach to handle warranty overflow, this type of business is now soliciting repairs outside of warranty and beyond the scope of their own vehicle platforms. OEM dealerships are also concentrating heavily on the repairs of not only their own vehicle platforms, but also other makes and models through their service bays as well.

Trend 3: Competition for Technicians

There is another threat from the OEM that the aftermarket dealer has to face: the theft of technicians. With approximately 22,000 makes and models on the road that technicians need to have knowledge of, and OEM technicians being focused on the their own make/models, dealerships have been recruiting talent away from aftermarket dealers to work in their facilities. And, OEM dealerships can in general offer better career paths, compensation, and benefits packages than many aftermarket service dealers can.

Trend 4: Competition from Chains

The traditional aftermarket dealer is also facing pressure from competition within the industry. National chain installers such as Canadian Tire, Sears, Midas, and Speedy, for example, are adding pressure to an already compressed market. These national chains are advertising very competitive pricing on repairs, which some service dealers have difficulty in matching, to draw in the post-warranty vehicle owner. These chains are purchasing product directly from manufacturers and are concentrating in service segments such as brakes, exhaust, and lube and filter. These chains also have the resources to offer better training and benefits packages than many aftermarket service dealers do.

Trend 5: Car Dealer Service Focus

The new car dealer percentage of vehicle repairs is increasing as they focus more attention on their service bays. Why is this happening?

OEM dealerships have been making low profits on new vehicle sales. Profits from the sale of new vehicles have been running from $150-$200 per vehicle. In the past year or so, this profit margin has increased to about $300 on average per vehicle, thanks to higher sales of trucks and four-wheel drive vehicles, yet average profits are low in comparison to what dealerships can realize in profit from their service bays. This is why the OEM automotive manufacturers are a threat to aftermarket service dealers.

Another factor causing this shift of focus is declining warranty with new vehicles. There is an anticipated drop in warranty work of between 30% and 40% by the year 2002, as vehicle manufacturers continue to perfect their systems.

Trend 6: Rising Customer Expectations

How does the dealer compete with that level of competition? You might respond that the dealer needs to have the vehicle repair finished when promised and the repair must be done right. Well, in today’s world, those two issues are minimum expectations in the consumer’s eye. Today’s shop must deliver the vehicle on time and they must fix it right the first time just to keep a customer interested. Every shop in the aftermarket is working for that goal and additional changes must be made in the shop for the dealer to survive. Increased profitability is one change. Profitability is a critical factor in shop survival.

Trend 7: Image

Additionally, the dealer has to worry about the image of repair facilities as portrayed in the media. Perception is reality, and with the news media targeting a few bad shops and giving the impression that all shops are doing unnecessary repairs, the public can get the impression that service dealers are “out to rip them off.” The problem is enhanced by the complexity of today’s vehicles, increasing the opportunity for problems. Even if the vehicle is repaired correctly today, something else could fail in the system two weeks later, giving the vehicle owner the impression that things weren’t “fixed right the first time.”

Dealing with these factors successfully is critical to your customers’ collective survival and by extension yours, too. The first step is immersing yourself in the challenges facing your customer. The second is starting to do something about it.