The Aftersales Market In Europe: A Challenge – And An Opportunity

More mature industries experiencing either slow, or even no growth, have no choice but to understand customers' attitudes and behaviours in an effort to put the right action into place to increase customer loyalty.

The automotive industry is one of these threatened markets. Beside high margin pressure on new car sales caused by a stagnating demand, the aftersales market is changing radically – with all the opportunities and risks for the market players.

The total European repair and service market is estimated at € 185 billion in terms of retail value in 2006. Compared to 2005 the market experienced a moderate growth, rising by only 0.6% in real terms. By the year 2010 the retail sales for car aftermarket products and services are predicted to be worth € 190 billion, an increase of only about 2.5% in real terms over the 2006 – 2010 period.

There are a large number of different influence factors challenging the automotive aftersales market. Beside others, the most important ones are as follows:

• Car parc size and growth
• Vehicle age
• Vehicle survival rates
• Annual mileage
• Testing standards
• Component quality
• Vehicle mix
• Warranty periods
• Service intervals
• Legal changes

The distribution of aftermarket products is a highly competitive arena and is becoming a battlefield in the automotive landscape. This sector is experiencing reduced margins and increased competitiveness, which is likely to alter how products are distributed to the customer. In addition, many key markets are seeing low, or no year-over-year increase in new vehicle sales. As one consequence, technology improvements enable parts to last longer and lasting longer is no longer offset by the rise in the vehicle park.

Product manufacturers as well as distribution players have placed the distribution map under intense pressure to change. The potential to extract efficiency savings is immense.

The rationalization of the distribution chain will have massive repercussions on the aftersales market. Wholesalers and distributors face a struggle to survive in their current form, with the route-to-market map likely to be shredded in favour of fewer and simpler distribution layers across Europe.

At the same time, the retail sector is facing a power struggle. Vehicle manufacturers and new distributors are challenging the traditional retail channels.

There is still uncertainty with the replacement of the 20-year old EU Block Exemption Regulations. Further changes threatening to transform the way parts are distributed to the car owner are expected. In theory, since the vehicle manufacturer can no longer insist on vehicles still under warranty be serviced by a franchised dealer, the independent sector which has traditionally taken over responsibility for servicing only once the vehicle is out of warranty, should see an advantage.

Europe has seen major consolidation among its distribution operations. In fact, a major shake-up in aftermarket distribution is currently taking place throughout the industry. For example on the retail side, Kwik-Fit led the way in acquisition, having purchased among other the Speedy and Pitstop chains in France, Belgium, Spain and Germany. The leading European autocentre chains, such as French or German market leaders, Norauto and ATU, have tended to grow organically. On the wholesale side, the buying groups which dominate continental Europe are acquiring each other. For example, Autodistribution which enjoyed 40% of the French wholesale business bought Finelist, one of the two leading UK distributors at that time. These are just some of the trends highlighting an aftermarket industry undergoing a massive transformation.

Customer loyalty
The results of a recent representative Maritz Poll amongst car owners in Germany and the UK demonstrate the customer loyalty challenges faced by auto manufacturers and their franchised dealerships.

Routine maintenance
The survey makes it clear that in Germany the franchised dealers of the own brand dominate retail distribution patterns of routine scheduled maintenance self-paid by the customers, with a 62% share in terms of visits. The principal competitors to the dealer network are the independent garages which achieve 25% of all the visits for routine maintenance.

However, the results also demonstrate the key problem for franchised dealers: The dealer share of visits declines significantly over the years of vehicle life. 86% of all the visits for routine scheduled maintenance performed on vehicles up to three years are made by franchised dealerships – however, once out of warranty, loyalty declines year-after-year. For vehicles older than ten years the dealer share amounts to only 31%.

In the UK, the franchised dealer network share of visits is calculated at 47% on average for customer-paid routine scheduled maintenance, whereas the independent garages account for 40% of all the visits.

Predictably, the dealer share is at its highest rate in the early years and drops steadily throughout vehicle life. The rate declines from 77% on vehicles in the 1-3 vehicle parc to (only) 21% in the 11+ vehicle parc.

Repairs The situation is even more difficult for franchised dealers for all customer-paid repairs. In Germany, the level of franchised dealer market share in terms of visits is highest for vehicles in the 1-3 years segment with 82%, but it drops to only 27% for vehicles older than ten years.

In the UK, independent garages have already almost the same market share as franchised dealers right after the warranty period of three years (40% vs 42%). The independent garage share of visits for repairs increases over time from 20% in the 1-3 car parc to the highest value of 69% in the 8-10 car parc. Another major competitor is represented by the fast fit garages which account for 8% of all visits on average.

The results demonstrate the need for auto makers and their franchised dealerships to better understand the customer attitudes and behaviours in the aftersales arena – and it also shows the opportunity for all market players to win customers over. Those who understand the customer needs and act in a customer centric way to provide a high level of service will see the effect on their bottom line – by extending their customer base and keeping their customer loyal.

Jörg Höhner
Jörg joined Maritz Research as Director Automotive Research in September 2005. Prior to joining Maritz Research, Jörg worked at Ipsos for twelve years in different positions including Director Automotive Research in Germany and Managing Director of Ipsos Loyalty.

Jörg has worked on the development of many large, multi-national customer research and product quality programs for major car makers. Through positions of increasing responsibility throughout his career, Jörg has gained a great deal of practical experience in all aspects of the automotive business as well as in the professional design of huge research programs. His ultimate strengths lie in interpreting of research data, drawing practical conclusions and presenting to executives.

Jörg has written several articles on research, automotive and CRM topics. Jörg has a M.A. from the Ruhr-Universität Bochum in Economics.

About Maritz Research | As one of the world’s largest marketing research firms, Maritz Research, a unit of Maritz Inc., helps many of today’s most successful companies improve performance through a deep understanding of their customers, employees and channel partners. Founded in 1973, it offers a range of strategic and tactical solutions concentrating primarily in the hospitality, automotive, financial services,telecommunications, retail, pharma workplace and technology industries. The company has achieved ISO 9001 registration, the international symbol of quality. It is a member of CASRO and official sponsor of the American Marketing Association. Based in St. Louis, Maritz Inc. provides market and customer research, communications, learning solutions, incentive initiatives, meetings and event management, rewards and recognition, travel management services, and customer loyalty programs. Maritz has a presence in 42 countries, with key offices in the United States, Canada, the United Kingdom, France, Germany, and Spain. For more information, visit .