WHO REALLY OWNS YOUR BUSINESS?

Changes to the way the vehicle is constructed and powered are likely to have an impact on the business model for garages

By Neil Pattermore | Published:  06 February, 2018

Life is always changing and as we all get older we start to remember our younger days and reminisce about how ‘things ain’t what they used to be.’
    
For example, a century ago, horses were still an everyday mode of transport and every village had a blacksmith to re-shoe them. As time moved on, getting to work was done on foot, by bus or by bike – which if you were lucky, may have had an engine. To service these two wheeled modes of transport, every village had a cycle shop who often covered both pedal and motorcycle versions.
    As the UK economy developed, many people aspired to owning a car for improved mobility. I recall how difficult it was for my father being able to afford to buy the family’s first car. It may have had leather seats, but there was no heater, so journeys in the winter were no fun. My father also conducted most of his own maintenance, as did many other vehicle owners, but this gradually started to be provided by the local garage and the aftermarket as we know it today was developed.

Evolution
For the last four or five decades, although the aftermarket has evolved, the basic business models have not fundamentally changed. People and businesses acquire vehicles and these vehicles get serviced and maintained by the main dealer or the independent workshop. Competitive choices exist for locations, labour rates and the spare parts. As vehicles have become more sophisticated with the introduction of electronically controlled systems, the ability to access the technical information needed to diagnose, service or repair the vehicle has become ever-more critical and legislation has been needed to ensure that competitive choices can still be offered.
    
To be able to repair today’s vehicles has therefore been about the appropriate training and equipment, supported by local marketing to attract vehicle owners into your workshop. This is relatively straightforward and more of an education process than a revolution of the basic business model – but this is starting to change.
    
The future is being seen as ‘mobility’ and ‘mobility services’ and the way that this is developing will fundamentally impact the Aftermarket as we know it today.
    
There are a number of key reasons why the future will impose a change to today’s business models. The types of motive power are already evolving and this rate of change will increase. This in itself will change the type and volume of work that traditionally has been provided to vehicle owners. Vehicles may still have an internal combustion engine, but this will be part of a hybrid system, which is more likely to be petrol than diesel – but it will include some form of electric motor – either as a direct drive unit, or as a 48 volt ‘mild hybrid’, but in both cases with energy recovery functions that reduce the amount of braking and consequently the replacement of brake system components. This situation is further increased if the vehicle is fully electric, when there are far fewer service and maintenance requirements. However, these vehicle types will only create an evolution of today’s business models.

Revolution
The revolution comes when you consider the change of vehicle ownership that is increasingly happening and the rate of which it will increase. The ‘good old days’ of aspiring to own a vehicle is no longer the case for the younger generation and a whole new range of ‘mobility services’ are being developed – especially as fully autonomous vehicles are introduced in volume. In many cases this means that the vehicle owner changes from being an individual to become a corporate organisation or even remains the vehicle manufacturer themselves.
    
This fundamentally changes the way that servicing and repairing the vehicle will take place. Firstly, the corporate owner of the vehicle will want to decide where and for how much their vehicles are being serviced and maintained. However, this may rapidly expand into a demand for lower hourly rates, together with a further demand of what parts are used. At best this creates a direct negative impact on your profitability, but it may go further.

Further requirements
There may be a further requirement for specific levels of both technical and management competence, which may require specific standards and management processes to be verified and maintained – increasing costs whilst margins are squeezed. Corporate organisations may also expect a national contact and administration function, which as an individual independent workshop it will be impossible to provide, so now you may need to consider how to be part of a coordinated national group with centralised facilities to be able to be ‘part of the game’. However, on the plus side, as part of a larger group you may also be in a stronger position to negotiate with the larger vehicle operator organisations, so it may not be all bad news.
    
If the vehicle manufacturer remains the owner of the vehicle, then they may also require that you handle warranty work – at the lower warranty hourly rates, together with the specific contracts that the vehicle manufacturer will also expect to ensure that their ‘standards’ are maintained. Ultimately, as vehicle ownership models change and ‘mobility services’ become the norm, each element of your business is likely to be managed by the requirements of the corporate organisations. This is not a legislative issue, but a direct consequence of changes in mobility service models and their commercial impact.

Significant impact
The good news is that independent garages will still be needed, but the most significant impact will be the squeeze on your hourly rates and spare parts margins, in much the same way as insurance companies have controlled accident repair centres. Ultimately, this may also impact your ‘modus operandi’ by imposing technical, management and reporting requirements. This creates the simple question – you may still be the legal owner of your business, but in reality, who controls your actual day to day business – you or the mobility services vehicle owner?
    
Now may be the time to start thinking about joining forces with other independent workshops – probably as part of a national soft franchise or an association – otherwise it may be a case of united we stand or divided we fall.                  

 
 xenconsultancy.com

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    Workshop owners need to think hard about investment decisions. With that in mind, I’ve used my last two articles to look at a business management tool called value proposition design, which can help us to work out where to spend our cash.
        
    We saw that it involves understanding our customers’ needs, which we do by identifying the jobs they want to achieve, and the positive and negative factors associated with them, respectively known as gains and pains. We then looked at how a business can identify products and services that might help customers complete their jobs, which, in turn, will either create the customers’ desired gains or relieve their undesired pains. These gain creators and pain relievers provide benefit to customers. Thus, investments in the right products and services increase our value proposition.
        
    Our investment decisions are usually complicated by the fact that they can represent a chicken-and-egg situation: Money is needed to support the creation and delivery of products and services, yet profitable products and services are needed to create money (at the very least you will need to show that you will have good profitability if you are borrowing to fund your investment). As such, there are two measures of success of our value proposition: Whether it provides real value to our customers and whether it can be deliverable within a sustainable business model.
        
    This article introduces a concept known as fit, which is the extent to which a company’s offerings match the needs of its target customers and are delivered within a sustainable business. Fit, therefore, represents the yardstick by which the success of a value proposition is assessed.
        
    There are three levels of fit of a value proposition to a customer (segment) profile:

    Problem-solution (‘on paper’)
    If we take the value proposition discussed in my last article and check it against the customer segment profile created in the preceding article, we can check their fit. We do this by going through the pain relievers and gain creators one by one and checking to see whether they match a customer job, pain or gain. We can physically visualise this degree of fit by putting a check mark on each one that does (see Figure 1).
        
    In this example, we have used our experience to the identify some jobs, pains and gains that customers might care about, and then created a value proposition to try to address them. However, at this point, we do not have any material evidence of the potential success of these products and services, gain creators or pain relievers. I.e. the fit is only evident on paper. The next step is to find evidence that customers care about the value proposition, or to start over designing a new one, if it is found that the customers don’t care.

    Product-market (‘in the market’)
    Once your products and services have been made available to customers, you will soon see whether they provide value to your customers and gain traction in the market place: customers are the ultimate, most ruthless, judge and jury of your products and services.
        
    When assessing product-market fit, it is important to check and double-check the assumptions underlying your value proposition, i.e. have you correctly identified and prioritised the relative importance of the customer’s jobs, pains and gains? Have you provided things that customers don’t care about, and will you have to amend your value propositions, or start again?
        
    Business model (‘in the bank’)
    Your business model is the way your business is geared up to generate revenue and burn cash whilst you are creating and delivering a value proposition to your customers.
        
    The search for business model fit involves reaching a state where you have a value proposition that creates value for customers (products and services they want) and a business model that creates value (profit) for your organisation. You don’t have business model fit until you can sustainably generate more revenues with your value proposition than you incur costs to create and deliver it.

    Context
    The potential value of our products and services, and the associated gain creators and pain relievers, doesn’t just depend on their match to the customer’s jobs, pains and gains. It also depends on the circumstances in which they are offered; i.e. their value is dependent on context.
        
    For vehicle owners, an example might be the value of breakdown services. Have you ever signed-up for these from the hard-shoulder of a motorway? You’ll notice that you don’t get much of a discount. Those offers that you might have seen on the internet beforehand will suddenly seem pretty good value. These differences are because the breakdown service companies know full well that the perceived value of their services depends on context!
        
    As such, businesses must identify the contexts in which their products and services will be offered. For example, a customer’s priorities will differ depending on whether they are broken down, have an expired MOT, need a replacement bulb in night time driving conditions, or are just booked-in for scheduled servicing etc. It is possible that each context might require its own value proposition.

    Focus
    For a customer having a given set of jobs and associated pains and gains, there are many ways a business might design a value proposition to achieve a fit. This is certainly true in our industry, in which there are many competing types of service and repair provider. Each has tweaked its value proposition to suit a given type of vehicle owner or context:

    Independent workshops, often offering a large range of products and services as a kind of one-stop-shop to the ‘general’ motorist, usually aim to generate sufficiently high revenues by inspiring maximum loyalty from customers and trying to meet all their needs under one roof. These businesses require constant investment to provide the services necessary to keep-up-to-date with changes in motor vehicle technology and face a continuous challenge to monetise the value of every additional service.  Many diagnostic (or recalibration) services are still not well understood by customers, and workshops have to work hard to educate them, so that they can ‘appreciate’ their value. Convenience must also play a relatively significant part in their value proposition.
      
    Fast-fit operations are all about convenience: Their customers can get in and out fast, without any notice, and, hopefully, with the minimum of disruption to their lives. The businesses require large stock inventories to ensure that there are no supply-related delays. By concentrating on only the fast-moving (the most commonly needed) products, these businesses can remain highly scalable and profitable: although they limit the scope of their products and services, to reduce costs, their sales volumes allow them to retain considerable buying power. Their customers love the convenience and prices they can offer given the buying power (and increasing integration with the parts supply chain) that the larger fast-fit chains have. Main dealers, I think, rely more on social or emotional pains and gains to draw in their customers (e.g. think about the image they work hard on purveying or the potential manipulation of customer perceptions of safety, both driven by presenting themselves as the most qualified to work on a given make of vehicle). They need to work hard to offer convenience (e.g. courtesy cars, rapid turn-around, customer/vehicle pick-up or drop-off etc.) as their dealerships, geographically-speaking, are relatively sparsely distributed amongst the population. Some vehicle owners (ironically, those most likely to buy their next vehicle from a dealership) will also be concerned with the resale value of their car and may seek to maintain a full dealer service history to try to maximise its value.
        
    Following the above, broadly-defined, categories of businesses, there comes specialists, offering a smaller range of products and services to increasingly niche customer segments or contexts: e.g. independent specialists (single-make specialists combining aspects of both the independent workshop and main-dealer value propositions), diagnostic specialists (as with breakdown and recovery specialists, when you need them, you need them – and they should charge accordingly), component-repair specialists (e.g. transmission specialists).
        
    Then there is the remaining plethora of value propositions available to vehicle owners: breakdown and recovery services (apart from their normal role helping those in distress, I’m sure they would agree that they also play a role in repairing vehicles for those that place no value whatsoever on preventative maintenance…); mobile technicians (perhaps offering the ultimate in convenience in certain contexts?); and, my favourite, the chancers (that bloke in the pub who once changed a side-light and now thinks he can charge an equally stupid idiot to fit a new timing chain for them…).

    Future
    We’ve seen from the above that a stack of value propositions is competing for our vehicle-owning customers. As such, our value proposition design work and derived knowledge, can inform a strengths, weaknesses, opportunities and threats (SWOT) analysis of our business. So far, all these competing businesses have managed to co-exist and thrive within an industry that is set-up to offer value to private vehicle owners. However, take a look at Figure 1 again – what might be arriving in the future that could represent a threat to not only an independent workshop but the entire sector? How about Vehicle-as-a-Service (VaaS), a.k.a. car-on-demand? This single value proposition removes an awful lot of the hassle of vehicle ownership (equivalent to automotive morphine…) and provides many gains. In fact, it is so disruptive that it removes/changes the very nature of the customer segment; vehicle ownership becomes almost redundant. Should it be a surprise that one of the few barriers to widespread adoption of VaaS (the convenience of making short, necessary, journeys, e.g. to pick up milk when nearby shops are closed) is being addressed by a company that is seeking to provide VaaS: i.e. Amazon whom are also developing drone delivery systems?
        
    When it comes to the ultimate value proposition, may be there can be only one.
        
    I’ll leave that thought with you.


  • Here comes the sun 

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  • Aftermarket scenario planning  

    Definition of uncertainty:
    a state of having limited knowledge where it is impossible to exactly describe the existing state, a future outcome, or more than one possible outcome.

  • How’s the health of your business? 

    In my line of work I meet a lot of great garage owners. Dedicated men and women,  all committed to repairing their clients’ vehicles to a high standard. They’re intelligent, hard working and persistent people many of which have been in business a good few years.
        
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    Why so low? Why are business owners leaving £50,000 per technician on the table? There are a plethora of reasons but I find the most common answer is one of focus. They’re just focusing on the wrong things.
        
    It’s natural. In fact it’s perfectly understandable why a garage owner focuses on the technical aspect of their business. You know that if you don’t fix the cars in a timely manner to a high standard that your income will suffer and your customers won’t return. So of course you’re interested in technical tools and the latest workshop wizardry that’ll enable you to complete a job that you couldn’t without it, or the same job in less time. But let’s be honest (we’re friends after all) is this laser-like focus healthy? Are you too focused on the next tool, the next gadget, the next BIG THING to the cost of your business? All too often I find that a garage owner is and it’s costing you.

    If you’re not measuring it…
    All that is required is a change of focus. The success of your business is in the data, and if you would like to claw back that £50k per technician (or at least a large chunk of it) then learning how to measure the right data and use it to your advantage is essential. After all: If you’re not measuring it, you can’t improve it.
     
    So, you want to increase your income and profit, what should you be measuring? Here are a couple of metrics to get you started.

  • Unfinished monkey business 

    It’s been a while since I’ve trawled the online job pages,  but the other day I was sent a link to a job that had been advertised. A local main dealer who shall remain unnamed was in need of a NVQ Level 3 Technician, nothing too strange about that, but as I read on the salary surprised me. The role was being offered was just £16,000-£18,000 per annum. Underneath this advertised job was a vacancy for a Warehouse Operative with a starting salary of £18,500 and no experience needed.  
        
    This is a huge problem with the automotive industry and its inability to keep skilled and experienced mechanics especially in main dealers. The Level 3 qualification requires a significant amount of work and exams that can take years to achieve, knowledge needed to work on modern cars is becoming vast and learning is continuous to stay up to date with technology.

    Shortage
    Every year I hear the problem about a shortage of mechanics. Every year the industry struggles to fill gaps in its workforce due to the lack of skilled techs. And yet, as I constructed a Twitter post about the job I had seen I found how many disgruntled ex-technicians actually exist. The tweet proved to be a sore point with certain people who explained that they left main dealers to go to independents due to better pay, some even moved completely away from the automotive sector to again be paid more and be treated better.
        
    As an industry we need to retain staff and pay them according to the skills and knowledge required to work on ever more complicated vehicles. A common problem I found was the time restrictions within which techs are expected to complete repairs. From every mechanic I have met they strive to fix issues, they want to solve customers problems and provide a roadworthy vehicle in return.
        
    Primarily I entered the car repair trade because I am addicted to fixing problems and providing a great service to consumers, hourly rates are soaring and I feel customers simply aren’t getting value for money at some establishments.

    Imperative
    As a business owner it’s imperative that the mechanics are all highly skilled and customer friendly, the garage business is all about reputation and that starts with the quality of work. There are no time restrictions, for me the most important factor is returning a vehicle that is fully fixed and safe. I believe that providing a wage that reflects the mechanics skills and the continuous on the job learning they have to complete is vital, as well as this providing them with the tools required for the job.

    I find the salary of £16,000 an insult, to pay that kind of money for a skilled individual is terrible. I hope mechanics in the area know their worth and won’t apply for it, but I also hope that soon the automotive industry can start attracting and retaining more individuals. I will leave you with the saying ‘if you pay peanuts you get monkeys.’  



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