Member reports and management briefings

OEM channel strategies to preserve their spare parts business in an ageing car parc

 by Thomas Chieux Management Briefing 164/23

ICDP often reports on the mega-trends that influence the car aftermarket, and that will impact the sector over the next decade, such as electrification of the car parc, the growing average age and better reliability of cars, their technical complexity, and changes in customer behaviour and expectations.  These elements, taken individually, could have positive as well as negative effects on aftersales demand.

Learning from demand management capabilities proven in mainstream retail

by Ben Waller Management Briefing 163/23

As carmakers begin to stabilise supply, the need to better manage new vehicle supply and demand has never been so critical, but still the supply situation is too often viewed as a market outcome rather than a managed strategy. The supply shortage, combined with pent up demand, has led us to higher transaction prices but inevitably, classical economics tells us that as supply recovers, and demand weakens, the resulting transaction price will fall at the higher volume.

The new MVBER: evolution or revolution?

by Andrew Tongue Special Report June 2023

The Motor Vehicle Block Exemption (MVBER), the EU competition rules governing franchise agreements relating to aftersales and spare parts distribution in the automotive sector, have just been refreshed for a further 5 years. In this Special Report, we take a look at the review process, give a reminder of how the rules work, look at the changes being introduced to the Guidelines that accompany the MVBER regulation itself, and give our initial thoughts on the implications for different types of player in the sector. We have also produced a shorter briefing ‘The refreshed MVBER - The European Commission updates its competition guidance around aftersales and spare parts agreements’ available HERE.

Used cars - the neglected child?

by Steve Young Special Report December 2022

In this report, we analyse some of the main markets and leading used car players in Europe, look at what differences exist in some other non-European markets, and in particular focus on why the used car business seems to be the neglected child in automotive retail, overlooked for younger, smarter siblings.

This report is available on request to non ICDP members - please contact projectoffice@icdp.net to obtain a copy.

New freedoms, but within new limits, the emerging implications of the new VBER

by Dr Andrew Tongue Special Report September 2022

Over the past couple of years, we have tracked the review and replacement process of the European Commission’s Vertical Block Exemption Regulation (VBER), the competition rules that govern distribution agreements across all sectors of business, including the automotive industry. The outgoing rules package has been assessed, changes have been proposed, feedback has been gathered, amendments have been made, and the new framework has now taken effect. In this special report, we now turn from a tight focus on tracking the detailed changes to look at the broader implications of the new VBER on the sector, and to compare the opportunities it offers OEMs in how they operate their networks with the new constraints that have been introduced to preserve fair competition.

Development of the professional relationships between the players involved in Europe’s spare parts distribution

 by Pascal Wetter and Thomas Chieux MB 162/22

The changes in the industry affecting the aftermarket have a clear impact on all stakeholders, regardless of size or positioning in the value chain or within parts supply systems.  Change is mainly driven by the gradually decreasing market size in volume and rather stable in value as a result of increasing product quality and increasing penetration of safety features, besides alternative powertrains.  The need for high investment in equipment and technical skills to cope with the ‘new normal’ in particular puts repairers under pressure, whilst changing customer behaviour and more (toughened) regulations will further limit the scope for earnings.  However, the fact that change is happening in an evolutionary way suggests that it is not too late for the sector to adapt, but this must happen now.

The 2030 aftermarket: are we getting closer to the abyss?

 by Christophe Guillaneuf MB 161/22

The automotive aftermarket faces multiple challenges through changes in behaviour and technology.  These pressures are not new, but arguably have reached new peaks over the last few years.  In an effort to track how these changes will impact the overall size and value of the market, ICDP has produced projections periodically for over a decade, and this briefing reports on the main outputs of our latest aftermarket simulation round. We first deal with the evolution of the aftermarket size and value since 2017, and provides an assessment of the impact of the COVID-19 crisis on the number of jobs across 5 European markets (Belgium, France, Germany, Italy and the UK). 

The impact on distribution of new powertrain technology choices ahead for carmakers

 by Ben Waller MB 160/22

Previously, we examined the likely impacts of electrification upon franchise dealer network economics, which suggested that with margins offered on EVs being lower than those for ICE, the existing new car business would not be viable once EVs dominate the mix. Equally, whilst used cars and especially EVs are currently highly profitable as demand outstrips supply, once the EV market becomes the mainstream used car market, competition will reduce used car profitability. EVs entering the mainstream will mean a significant reduction in both service value and repair volumes, removing the aftersales cross-subsidy that underpins franchise dealer viability, a loss unlikely to be offset by possible growth in complex bodyshop work. In total, these implications of electrification will force change through breaking the existing franchise distribution model.

The role of aftermarket third party online platforms, and how they affect the customer-repairer relationship

 by Andrew Tongue MB 159

Many different sectors have seen ‘disruption’ in recent years as online platforms have emerged to link customers and providers, bringing choice and transparency for the former, and helping the latter to expand their reach, although sometimes at the cost of squeezed margins.  The automotive aftermarket has been no exception, with platforms across the different European markets offering customers the ability to receive and compare quotes for service and repair jobs, evaluate available repairers, and then make a booking.

Developing the near term dealer model

By Steve Young MB 156

The future of the dealer model has featured highly in ICDP’s research over many years, most recently in our Dealer of Tomorrow and ‘clean slate’ work.  Both of these had a focus on what might happen in the 2025-2030 timeframe, but the dealer model has come under renewed scrutiny in recent months due to the Covid-19 related pressures on the whole industry.  Amongst the questions being asked are:

• Has the process of digitalisation in the retail process been advanced as the result of the lockdown experience?

• Can reductions in dealer fixed costs be made as the result of applying lessons learned during the lockdown period?

• Will the disruption in the market result in more dealer failures, and consequently a step change in the number of investors, dealership points or both?

• Will the timing and nature of changes in network structures be accelerated or deferred as a result of the pressures on OEMs?

Will regulation succeed in creating a level playing field in the continued battle for access to in-vehicle data?

Andrew Tongue MB 155

Connectivity is now a ubiquitous part of everyday life, and its extension into our cars has long been seen by the automotive sector as a gateway into new customer relationships and revenue models based around digital services alongside the car.  But as some of the hype around the ‘connected car’ starts to become reality in the marketplace, behind the scenes arguments still rage over which types of player should be allowed entry to the in-vehicle data and resources that connectivity will make accessible, how, and on what terms.

This Briefing illustrates how the ecosystem around the connected car is developing, and how the number of stakeholders who will be needing to work with in-vehicle data is growing.  We then focus on the latest state of play in the European-level regulatory debate around access to in-vehicle data and resources, which has seen the opposing positions of the OEMs and the independent aftermarket lobby become increasingly entrenched, and ask the question of whether a solution can be seen on the horizon.  We conclude on the steps that traditional customer-facing players in the sector need to take to help customers to step into the world of the connected car.

Independent service chains in Europe: time for a new strategy

Thomas Chieux MB 154

The scope for this research on service chains covered the top five European markets, plus Belgium and the Netherlands and we analysed three types of chains:

1. Tyre specialist chains (e.g. Euromaster) – please note that small independent tyre fitters are not included

2. Fast-fit chains (e.g. Kwik Fit, Midas) that are focused on quick fit operations

3. Auto-centres (e.g. Norauto, Feu Vert) that are basically a fast-fit workshop run together with a self-service shop selling parts and accessories

Independent online platforms: could we see a Booking.com-type operator emerging in the automotive aftermarket?

Thomas Chieux MB 153

Independent online platforms, especially ‘front office’ ones that offer services bringing together customers and repairers, have been growing across the aftermarket in recent years. This Briefing looks at where the limits to this growth might lie over the years ahead, and specifically, at the question of whether we might see the emergence of a sector-dominant Booking.com-type player in automotive repair and maintenance.

Launching into the European market with a ‘clean slate’. A retrospective view of past approaches and lessons learned

Pascal Haubenreisser MB 152

Most OEMs over time have launched in their domestic market, and then expanded their operations over time into additional markets, appointing dealers and hiring staff as they roll out. They also follow an operating model of how vehicles are ordered, funded, stocked and delivered that drives their working capital and profit reporting. In the course of this, they have also created a legacy that can be a barrier to change, extending not only through their own organisation, but also through dealer investors and the expectations and behaviours of their customers. We have conducted a detailed evaluation of OEM brand launches of the past 20 years, to establish whether there is a pattern to the launches we have seen, as well as the variety of interdependent common and individual reasons for past initiatives failing.

The Block Exemption review: exploring 'digital' competition

Andrew Tongue MB 151

As the process of reviewing and renewing the Block Exemption regulations that govern franchise distribution in the automotive and other sectors steps up a gear, the European Commission is busy soliciting views and data from interested stakeholders. At the same time, broader issues in the policy environment that may need to be reflected in the new regulations are coming more firmly into focus. Whilst it is too early in the process to talk about potential outcomes, we are now seeing the list of ingredients going into the melting pot. This Briefing gives a reminder of how the review processes will run, before going on to explore one of the major questions facing the regulators in updating the legal frameworks: how to handle the rapid growth of ‘digital’ competition, and the emergence of powerful online platforms connecting producers, retailers, and consumers.

Large European Dealer Groups – will they be given the task of managing dealer consolidation in OEMs’ future network plans?

Pascal Haubenreisser MB 150

Tracking developments in the automotive and general retail environments is a core activity within ICDP’s research programme.  Alongside our annual survey of OEM sales and service networks in our European Car Distribution Handbook (ECDH), we have recently assessed the evolution of large dealer groups at EU-5 market-level, concluding that some players have found growth opportunities against a backdrop of declining network numbers, accompanied by steady ongoing consolidation in the number of actual dealer investors.  Nevertheless, these larger players across Europe must adapt further if they are to cope with the intensifying pressures on the current dealer model.  Simultaneously, OEMs are still struggling with the ongoing challenge of improving overall network efficiency whilst trying to provide a consistent omni-channel experience across their networks.  Could a new, joint network approach with the large dealer groups solve some of these issues, and what might it look like?

This briefing draws in particular on data from our national Top dealer group rankings by revenue, from our 2018 “Guide to Europe’s Largest Dealers” published by Automotive News Europe (both covering non-manufacturer-owned operators only), and from data obtained through our recent dealer investor survey with 140 CEOs of major European dealer groups (Investors are the total number of different owners involved in the franchised dealer system).

Exploring the viability of micro-outlet formats

Pascal Haubenreisser MB 145

Consideration of how retail and aftersales channels are changing and will continue to change in the future is at the core of ICDP’s research, and an area we have been tracking from a number of different angles. In this piece of research, we looked at new physical formats – micro-outlets – which in a growing number of cases have been implemented by car manufacturers in collaboration with their dealers. Despite these usually being temporary formats, their location close to other forms of retail means that they can potentially reach higher numbers of possible buyers when compared to traditional dealerships. This has been recognised by many players recently, resulting in the launch of a number of new initiatives such as the Opel Cayu store concept in Germany, or the Volvo Studio in Milan, opened both in the second half of 2017. However, the location and specific fit-out required for micro-outlets translates into a high level of upfront investment, especially the outlets and their systems need to be integrated with other channels and formats. This raises questions on the one hand over whether these outlets should have an ‘active’ selling role, and on the other hand over the extent to which OEM financial backing can be justified for formats which are usually operated by dealers. For this research, we spoke to a number of operators, including dealers, OEMs and service providers across the EU-5 markets to gain insights, and combined this with secondary material to create a financial model to examine the preconditions for viability of micro-outlet formats.

People and skills in automotive retail – how to adapt to an omni-channel world?

Pascal Haubenreisser MB 144

In this research, we have been looking at issues around customer-facing staff at dealership level, either salesmen or service assistants – who in the majority of cases are located at physical sites, but increasingly work in back-offices to answer calls, emails and live chats. As staff quality has a significant influence on the decision-making process for new car buyers, the retail level must ensure that it employs people with the right attitude, including more soft skills capabilities alongside hard skills, which in many cases is the opposite of the traditional and persistent approach in the sector of following short term objectives, leading to high staff turnover. However, this need has recently been recognised by a number of larger dealer groups, resulting in the emergence of new approaches towards recruiting, training, developing and rewarding customer-facing staff. Nevertheless, there is still room for improvement, especially in addressing the gap in soft skills and attitude, plus the related question of new approaches to remuneration. For this research, we spoke to a number of large dealer groups, service providers and accreditation authorities across the EU-5 markets to gain in-depth insights, and supported this with desk research.

Reshaping parts distribution in the independent aftermarket

René Herrmann MB 143

The ongoing consolidation amongst spare parts distributors (PDs), often now happening as a result of the involvement of private equity funds, is leading to the emergence of more international ‘super parts distributors’.  These players now enjoy significant economies of scale in both their parts sourcing and in the provision of services for independent repairers, to the point where traditional smaller distributors are finding it harder and harder to compete.

In order to understand the impact that this consolidation is having on the overall competitive landscape of the parts distribution sector, we turned to the well-known ‘Five Forces’ model developed by Michael Porter.  Through this, we can illustrate:

1. The competitive rivalry between parts distributors

2. Pressure from digital entrants

3. The bargaining power of repairers

4. The threat of substitute products

5. The bargaining power of parts suppliers