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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