2. ICDP Discussion Paper Summer 2014 Page 2
and longer journeys, offset by failsafe systems which avoid crashes and are gentler on the vehicle? Answers to
these questions will depend largely on what type of autonomous driving is allowed by regulators. The barriers to
pure electric vehicles still seem to be substantial, with the hoped-for technology breakthrough always 5 years
away. However, hybrid and plug-in hybrid technology is becoming mainstream, whilst small diesel engines are
being priced out of the market by tougher emissions standards and improving gasoline engine performance. We
can therefore assume some changes in the powertrain mix in the parc by 2030, but still dominated by IC engines,
albeit with increasing levels of electronic controls and more hybridisation.
Electronics content in general will continue to increase – driven by regulation and new product features, as will
new materials and material combinations. These will demand new skills and capabilities from repairers, and an
increased level of remanufacturing as the normal repair method becomes “swapping out” a failed or suspect unit
for a replacement. Until now, independent repairers have been able to keep up in the technology race – some
have made commercial decisions based on market potential not to invest in the capability to handle, for example,
hybrids, but where it made sense, they have invested in training and equipment for new technologies. However,
as these pressures continue, we anticipate that smaller true independents will come under increasing pressure and
their numbers will diminish. A further factor is that growing use of remanufactured parts requires the repairer to
be integrated into the return supply chain for the failed units. Together, we expect these factors to drive some
consolidation in the independent sector, with the benefits increasing of being part of a hard franchise chain such
as Bosch Car Service.
Telematics
By 2030, the vast majority of cars in the parc will be telematics-enabled. Most will have the OE fit, but in older
cars, the owner may no longer be signed up for any added value services. Others will have chosen an aftermarket
telematics service, either because their car did not have an OE fit, or because they prefer the value proposition of
a third party offer. We believe that long before 2030, European regulators will have enforced an “open access”
requirement for telematics so that the customer can choose to connect their OE box to a third party service
provider. These service providers will cover a range of different business models – some insurance based, some
repair and maintenance-focused, others limited to safety and security, or infotainment. In combination with
almost universal use of smartphones connected to the car, we will truly be in the world of the connected car. We
anticipate that there will be rise in “car concierge” services who will take a telematics link to the client’s car and
then provide a menu of services
according to customer needs (lowest
price, convenience, preferred
suppliers, etc.) to address all related
needs, such as repair and
maintenance, accident management,
insurance, parking and so on – all on
a referral fee/commission basis.
Such services already exist on a niche
basis, but we believe they will
become more widespread, provided
by motoring organisers, other trusted
brands and start-ups. This will
challenge existing relationships, and
the implicit assumption by
manufacturers that telematics will
assist them alone in customer
retention.
3. ICDP Discussion Paper Summer 2014 Page 3
Bundled Service and Insurance
The battle for customer retention in a shrinking market will drive continued growth in inclusive service and
insurance, not only on new cars, but also on used cars up to 7-8 years old. We do not see that the upsell of
optional service packages or manufacturer-backed insurance will become any easier over time, so moving to a
bundled offer, potentially with an “opt-out” to meet likely competition concerns from regulators, will become the
norm. This “lock-in” of the customer will enable some reduction in service network density, and a general
reduction in the number of workshops overall to track the decline in market size. Over time, we expect drivers to
become more comfortable with longer driving times for aftersales, as they gradually recognise that the number of
visits required during the period of their ownership has reduced dramatically over the last decade. We may also
see some increase in the use of collect and deliver, particularly in urban areas where these costs can be offset
against lower cost premises and operating costs in non-prime sites. Technology will also allow some service
actions to be handled remotely without access to the vehicle at all (as already demonstrated by Tesla), with
bundled service removing the emotion from the question of “what am I paying for” when the customer may not
even be aware that a repair action has taken place.
Networks
ICDP has already suggested in our research on Future Networks (September 2013) that there will be a greater
separation of Sales and Service within franchised networks over the balance of this decade to 2020, as the result
of changes in customer buying behaviour, and that there will be more variety in service formats as increasing
technical content in cars requires specialist skills and equipment which cannot be justified in every outlet. This is
mirrored in the crash repair sector as reported in June 2013, with a spectrum of capabilities from “smart repair”
through to aluminium and carbon fibre specialist repair centres. We see this trend continuing through the next
decade, with specialist centres for complex diagnostics and heavy body repairs, and the secondary network –
including standalone service points – continuing to shrink. In this respect it will follow a similar evolution to sales
networks, but with a time lag of some 5-10 years.
This reduction in network density and the segmentation of complex repairs from routine service and repair will in
part be enabled by improved pre-diagnosis using telematics, as described earlier. This will help to ensure that the
car is booked into the correct location, parts are pre-ordered, and customer requirements such as courtesy car or
collect/deliver scheduled. This will ensure optimum capacity and labour utilisation, minimal parts inventory and a
high level of Right On Time, First Time fix. As skill levels increase, along with required training and investment in
equipment and tools, labour rates for the more skilled technicians will increase, so ensuring that they are
productive will be critical, and will influence load planning. The various connections required to support telematics,
effective predictive marketing, online booking, pre-diagnosis, parts ordering and load optimisation across locations
and skill types will require a closer collaboration between manufacturer and repairers, and between repairers, than
has been the case until now. Independent repair networks will follow this same trend, although their centre of
excellence for heavy repairs may be a third party with whom the repairer has a commercial arrangement, rather
than being under common ownership.
4. ICDP is an international research-based organisation focused on automotive distribution, including the supply and retailing of new and used vehicles,
after sales, network structures and operations. Through our research activities, data services, education, events and consulting, we work with vehicle
makers, dealers, suppliers, and related organisations to improve the quality and effectiveness of the distribution model. We believe that changing
behaviours, new technologies and market pressures will combine to drive new ways of doing business. We welcome the opportunity to work with
like-minded individuals and organisations in pursuit of this goal.
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Parts Channels
We will report on online parts channels later in 2014, but it is already clear that this will grow, extending beyond
tyres where penetration reached 12% in 2013 in France for example, and is expected to reach 15%-20% in
Germany by 2014. This growth will be aided by the electronics content of the vehicle as the level of self-diagnosis
and self-identification will increase, reducing one of the main barriers to online parts channel usage. Even with
modest penetration, the price transparency that online channels brings will push down prices across all channels,
at least for those parts which are most easily sold in this way. Technology may also open up opportunities for
substitution, with 3D printing allowing the local manufacture of simple parts such as headlamp brackets – designed
to fracture for pedestrian safety in frontal accidents, and easily reproduced as a “download” to your 3D printer with
little or no physical distribution. This margin pressure on core parts will remove the “buffer” that has sustained
inefficient parts logistics supply chains for decades. In combination, the need to reduce costs, the loss of true
independent repairers, requirement for remanufactured parts return cycles and pressure from consolidators
exemplified today by LKQ, will drive restructuring of the whole parts distribution business, for franchised and
independents. We anticipate fewer stock-holding points, more shared distribution across brands, and integration
of online and physical to create a “click and collect” offer.
Summary
Whilst there is an inherent lag in the aftersales business due to the effect of the parc, extending our horizon out to
2030 does describe a world which is familiar in some respects – most of the parc mix, the competition between the
franchised and independent sector, declining volumes and the move away from mechanical repair to electronic
diagnosis and module replacement. However the near ubiquitous “connected cars” and the impact that this has on
the operation of the aftersales business as an integrated “organism” rather than as standalone players will be
fundamental. This will be a brave new world, and will be one where effective partnerships will be at a premium.
It remains to be seen whether existing players can deliver this, or whether new players – more used to these types
of virtual enterprises – will take the driving seat, and with it the customer relationships.
