Out of sight, but out of mind?
Neil Pattemore looks ahead at the host of legislative challenges the aftermarket faces over the coming months and years
By Neil Pattermore |
Published: 01 February, 2019
Some people listen but they don’t hear, others are disbelievers, while others consider that if it worked yesterday it will still work tomorrow. Many of us don’t like change, but I am sorry to inform you, but change is a’ coming!
I was recently discussing with a workshop owner about the legislation that helped his business, but when I mentioned ‘the third mobility package’ his eyes glazed over like I was Kaa the snake from Disney’s Jungle Book and I was trying to hypnotise him!
However, this is not a work of fiction, but the serious issue of how you need legislation to support your business. Currently, there is a lot of discussion during the remaining tenure of this Commission in preparation for the next European Commission in September 2019, concerning how a whole variety of ‘mobility services’ around vehicles will be provided and what legislation will be needed, which will impact the future of the European aftermarket, but also the UK after Brexit.
Sorry to be the messenger of doom and gloom, but the automotive industry is changing and with it, the aftermarket. It may not be too long before you become aware of just ‘how good you have had it’ and to use another colloquialism, ‘you will miss it when it’s gone’. So, what’s going on in Brussels?
Vehicle technology is changing at an ever-increasing rate, but most critically this includes the connected car, where a vehicle and its data can be accessed remotely. This is great news for the development of new services, new diagnostic and repair methods, the vehicle has become part of the internet of things that enables traffic flow management, the implementation of intelligent transport systems to reduce accidents and ultimately, autonomous vehicles. In legislative terms this creates a whole new raft of challenges – but most critically, how to handle the safe and secure communication with the vehicle.
The third mobility package seeks to address some of these aspects, one of which is fundamental – who controls access to the vehicle and subsequently data. In simple terms, simply plugging in to a vehicle to conduct diagnostics or repair and maintenance will be controlled by the vehicle manufacturer unless the legislator does something. To most of the UK aftermarket, this is an ‘out of sight and out of mind’ scenario. However, we are at a crossroads and the only way forward is legislative action.
So, what else are the jolly Eurocrats in Brussels working on that may impact the aftermarket?
Although this may be an excellent example of how slowly the wheels of legislation can turn, one of the most important ‘left overs’ from the Euro 5 legislation that came into force in 2007, is the inclusion of a reference to ISO 18541, which standardises the access to repair and maintenance information via vehicle manufacturers’
websites. Additionally, and linked to the ISO 18541 implementation, will be the inclusion of the SERMI scheme – the Secure Repair and Maintenance Information which will provide accredited access to vehicle anti-theft information, data and parts for independent workshops. Both of these should significantly help in avoiding having to refer your customer’s vehicle back to a main dealer to finalise a repair job.
In another recognition of increasing vehicle technology, there will be the finalisation of the access and data requirements to test electronically controlled safety systems via the OBD port in Roadworthiness Testing – the MOT test to you and I. However, there is much discussion, both in Brussels and in the ISO standardisation, about exactly what the test methods will be and what data the vehicle will provide. There is some risk of the vehicle just testing itself without the ability to have independent functional testing. Oh what fun we can look forward to with older vehicles when inventive ways are found to avoid that pesky little MIL light coming on!
Multi-faceted
This also leads into another discussion around how access to the vehicle will be possible. The beloved OBD connector and the corresponding data for diagnostics, repair and maintenance is now referenced in the revision of the Euro 5 legislation (EU 2018/858), but it is by no means clear exactly what this means in technical terms, or indeed how the access may be controlled by using electronic certificates. No firm proposals are yet on the table and the corresponding menu of whether it will be a feast or just some crumbs will be a major subject of discussion. This is yet another example of how connecting to an object that is part of the internet of things is a multi-faceted topic that will impact the aftermarket. This moves into another sphere with the inclusion into legislation of remote diagnostic support (RDS) – originally from heavy duty vehicle legislation implemented in 2009 (!), but under the new EU 2018/858 it will also apply to passenger vehicles as well. This is intended to allow the remote diagnostics of a vehicle, but it is certainly not clear how this may be achieved independently of the vehicle manufacturer, as they would then know you and your customer, as well as charging you for this RDS service.
To better understand the vehicle manufacturers’ extended vehicle model that would be used to provide this RDS service, the Commission are currently monitoring a proof of concept that seeks to assess what is possible. From the outcome of this proof of concept, the current Commission are likely to make recommendations for the incoming Commission for future legislation. However, a recent study conducted by the aftermarket associations in Brussels showed that this extended vehicle model provided very limited data, with further costs and contractual restrictions, making it unusable for truly competitive services. The battle lines have been drawn.
Implementation
On a more tangible note, there is a request for a better implementation of the Machinery Directive. ‘Yeah’ I hear you say, but a recent study showed that out of 47 lifts inspected throughout Europe, 11 (23%) were found non-compliant with a total number of 24 non-conformities. The European Garage Equipment Association (EGEA) has therefore called on the Commission to stop dangerous and non-compliant workshop equipment being sold in the EU by imposing stricter and more effective market surveillance and thus avoid further deaths and serious injuries, as well as ensuring fair competition in the marketplace.
Although Brussels is ‘out of sight and out of mind’ to many UK workshops, there are many critically important discussions currently being held, leading to future European legislation that will be needed to ensure the continued ability to independently access, diagnose, repair, service and maintain objects that are part of the internet of things – which for the Aftermarket means vehicles. Much to think about and much to fight for!
xenconsultancy.com
- NSK planning ProKIT extension
NSK is planning to extend its ProKIT range to increase coverage across the car parc.
ProKIT is a range of bearing products developed specifically for the independent aftermarket. Offered as a single box solution, ProKIT includes only 100% genuine NSK products, such as bearings, seals and nuts, as tested and approved by OE car manufacturers.
The range will be increased to cover a wider range of vehicles over the coming months. In support of the expansion, NSK will also introduce new packaging that is 100% recyclable, carrying a range of useful information in 10 languages.
www.nsk-autoaftermarket.com
- Powering up your future business
Life never stands still and this also applies to vehicle design and the subsequent diagnostic and repair requirements. Any workshop business that does not evolve will, sooner or later, fail. The pace of change in vehicle design has been exponential in the last 10 years, across vehicle systems such as the development of driver assist systems, but equally for powertrain designs.
Part of the powertrain development has been for engine management, such as direct injection for petrol engines, cylinder de-activation and Atkinson cycle technologies, but these have been developments of existing internal combustion designs. There have also been different fuels, such as hydrogen, but again, evolution, rather than revolution.
The real change has been the rapid increase in the number of electrically powered cars, partly due to the development of both battery technology and volumes, with the subsequent reduction in prices, making vehicles both more affordable and useable, but the most significant influence has come from the political environment to move away from the reliance on fossil fuels.
Viable
Although electric vehicles are far from a new idea – the first (small scale) electric vehicles were developed in the 1830s, with viable vehicles being manufactured from the very early 1900s, including the first hybrid vehicles. Although the concept is not new and workshops have dealt with low voltage ‘electrics’ in the form of starting, ignition and lighting (SIL) batteries for over a hundred years, today’s electric powertrains pose significantly different challenges.
These challenges fall into several distinct categories, some of which you can directly do something about, while others which are outside of your direct control.
Firstly, doing nothing to develop your business is not the answer – the expansion of electrically powered vehicles is here to stay and the key is to understand what you need to do and when you need to do it. For the workshop, from the technical perspective, it is principally a competency issue that involves having the right equipment and the skills of the technician. Both of these will depend on how deeply you feel is necessary to be able to handle the level of work on the electrification of the vehicle’s powertrain and to some extent, this will be dictated by the demographics of your location, and your customer base.
There are several new vehicles which are now entering the market that use 48-volt systems, so these are not so challenging, but the existing and bulk of the future electrically powered vehicles will have much higher voltage systems and this is a key tipping point. To work on these systems imposes a duty of care on the business to ensure that technicians are not asked to work on potentially lethal systems without the appropriate equipment, protection and skill levels. For the workshop, this imposes a compliance for both the Electricity at Work Regulation (EWR) 1989 and the Safety at Work Act 1979.
Investment
However, the level of involvement in these higher voltage systems will also dictate the level of investment. This is illustrated by one vehicle manufacturer’s policy of implementing three levels in their main dealer networks for their hybrid or fully electric vehicles – level one is purely vehicle maintenance, level two is repair and replacement of components and level three is working on live systems.
In both Canada and Germany, compulsory training and accreditation of all vehicle repair technicians is mandatory.
For independent workshops in the UK, this three step approach would also allow the workshop to adopt an ‘evolutionary’ approach to investment, starting with some basic equipment and then building on this with the more specialist tools and equipment as the business develops, but I would strongly suggest that the technical training should be at a higher level from the outset to ensure that the technician fully understands the wider design and functionality of electrically powered vehicle systems to know the boundaries of where the work on a vehicle changes across the three levels – a good case of avoiding that ‘you don’t know what you don’t know’. Once your business has the competencies, then it is about promoting this to existing customers who at some stage will be hybrid or electric vehicle owners, or to those who already are, but don’t know that you can handle their vehicles – so if you make the investment, shout about it.
Opportunity
On another positive point, the European Commission have confirmed that electric vehicles still need to support access to their in-vehicle systems for repair and maintenance – clarifying the mis-held belief that if there were no emissions, then no OBD connector needed to be fitted.
These are the things that you may be able to control about electrically powered vehicles, but there are other aspects that are outside of your control which will impact your business. The most obvious is the extended service intervals and the reduced level of work which electrically powered vehicles need. Fairly obviously, this directly relates to no engine components on fully electrically powered vehicles, but even if tyre wear may increase due to their increased weight, their brakes last longer due to the capturing of energy when slowing down to re-charge the battery.
Electric vehicles will require new skillsets for their repair, away from mechanical repairs into more electrical and electronic orientated repairs. This will change the profile of the technician that is needed and also create an increased dependency on downloading software updates. However, these may be increasingly over-the-air updates from the vehicle manufacturer, without the need for a vehicle to come into a workshop. Just think about what TESLA are already doing. The way that the vehicles are purchased is also changing – especially for electric vehicles – as there is a separation of the cost of the vehicle and the renting of the battery to avoid the twin problems of the higher price of new electric vehicles and the concerns around the cost of replacing a battery as the vehicle ages.
Additionally, there will be changes in the ownership of the vehicle as ‘mobility as a service’ develops, but this may be an opportunity for independent workshops to provide competitive local repair and maintenance services to these new mobility operators, but only if the workshop is competent to do so – and so there is both a threat and an opportunity presented by electrically powered vehicles.
xenconsultancy.com
- Tomorrow never knows?
Last year I wrote about the changes facing independent workshops. Since then there have been further developments, and now the rate of change is increasing exponentially. You will be familiar with today’s challenges and probably aware of some of those of tomorrow’s, especially if you are a regular reader of this revered magazine. However, the workshop of the future will need to change significantly to stay competitive as well as being compliant with both commercial or legislative requirements.
If I look as some of the likely changes, they are quite wide-ranging, but together they will put increasing pressure on the management of the workshop and the business more generally. The IMI has recently stated that “management and leadership within the sector is not evolving quickly enough” and that “a skilled, competent and professional workforce, able to keep pace with the demands of new technology and changing markets and remain competitive” are necessary, which are being supported through the IMI’s ‘Campaigns for change’ initiative.
Greatest challenge
Looking at the workshop level first, then the greatest challenge remains the access to, and the use of, in-vehicle data. Taking the access to the vehicle first, it will be controlled to meet the needs of cybersecurity – needed as vehicles become ever-more electronically controlled on the way to fully autonomous vehicles. This also means that today’s OBD connector will be both restricted in the way that it can be accessed, already requiring electronic certificates to authorise access and to define what data/functions are then available, but also the width and depth of data which is also being reduced due to the very design of the OBD connector being unable to support the bandwidth needed for high-speed in-vehicle systems. The access for these systems will be via wireless communication, which is both faster and more secure, but also more difficult for the workshop to access – even if this is going to be possible at all. Vehicle manufacturers already deny independent service providers access to data via any of their telematics systems and are restricting the OBD port. To obtain the required electronic access certificates even for the OBD port, independent workshops have to be registered and authorised by the vehicle manufacturer before paying them for the required certificate. This is especially a requirement when working on ADAS systems, as the vehicle manufacturer needs to know if the repaired system is re-calibrated and working correctly, so access to the system, the re-coding of replacement ADAS components, as well as confirming the vehicle is working correctly again, is likely to be certificate based. All these access authorisation requirements are likely to need new legislation to provide independent access to the vehicle and its data.
Assuming that access is possible, the next evolution will be the use of data with supporting partners, such as the diagnostic tool manufacturers and spare parts providers. This will be necessary to quickly and accurately identify what work is needed on a vehicle and the corresponding replacement parts on increasingly complicated in-vehicle systems. This will be done by exchanging data with these service providers to provide a ‘just-in-time’ delivery of the technical support and parts needed – without this partnership support small independent businesses would struggle to repair tomorrow’s vehicles, let alone make a profit from doing so.
Vehicle ownership
As vehicle ownership moves away from individuals to ‘mobility service providers’, where the use of the vehicle will be available as short-term rental (i.e. by the hour, day, month etc.), your customer becomes the vehicle provider and they will drive down prices to be competitive in their own mobility services, so workshop efficiency becomes paramount to remaining competitive in this changing market.
In a wider context, the way that vehicles are supplied through authorised dealers is likely to change, as direct sales to mobility providers develops. As this happens, the authorised dealers are more likely to become service and repair points, and this is where the difference between authorised and independent repairers becomes more blurred. Both types of workshop will need similar levels of competence and be competitive for the service and maintenance they provide. This brings in another change for the independent workshop, where there will be an increasing need to have business management data reporting that will be needed by the mobility service providers to allow them to work efficiently with the workshops they are dealing with (e.g. financial and process management systems) that today is expected from authorised repairers.
The very real threat is that vehicle manufacturers will either fully block remote access to the vehicle and its data (the identification of what work is needed will be conducted remotely before the vehicle comes into a workshop), or will control the access via workshop interfaces, using electronic certificates, and in doing so, control all competitors while imposing their own business models and service/repair methods. Legislators are aware of this but are also deeply concerned about the cybersecurity threat and are still investigating what solution may be needed to ensure true competition is still possible for both the mobility service providers and vehicle repair workshops.
Some better news is the imminent referencing into European legislation of the ‘SERMI’ scheme, which will verify and authorise independent workshops to provide access to security (anti-theft) related data, functions and parts. This scheme is now being directly included in European legislation and once implemented, could be expanded in the future to provide a harmonised access and use of electronic certificates for other requirements. Ultimately, the SERMI could help avoid vehicle manufacturers blocking competition ‘through technical design’ – but this remains a legislative decision.
Competitive choices
The workshop of the future will look very different to the workshop of today. There will be much more reliance on the access and use of data. The sharing of this data will enable efficient and timely repair of the vehicle. This will also necessitate increased levels of business management to both fulfil the demands of mobility service providers, but also to ensure that the business has efficient management systems to underpin their ability to remain competitive – and to continue to offer consumers competitive choices. The future moves mechanical repairs into the digital age and the inherent IT skills that this will also require. This will demand changes within the independent workshop business, but will also be directly linked, in every sense of the word, to external partners – so choose your partners carefully, as your future business may be dependent on what they can provide and how this will impact your own business activities and efficiencies. It is also clear that your future business will increasingly be less independent and become increasingly interdependent on the requirements and abilities of others. United we stand and divided we fall – so seriously consider joining one of the UK aftermarket organisations who will fight for legislation that can support your needs. Welcome to the brave new world of vehicle repair workshops!
xenconsultancy.com
- Is the knowledge gap closing?
- part TWO: Succeeding with succession
Businesses change hands for all manner of reasons, but crucially for family businesses, change has the potential to damage family harmony as well as destroy the future wealth of all concerned. But what happens should no family members want to take on the business and the business has to be sold?
In this instance David Emanuel, Partner at law firm VWV and head of its Family Business team, says the family should take advice on the options. He advises seeking recommendations and says to “think hard about engaging people who work principally on a success fee percentage commission-only basis – the overall cost may be higher, although you may be insulating yourself from costs if a deal doesn’t go ahead – but there can be a conflict of interest for people remunerated only if a deal goes ahead.”
One step that will ease the process is to undertake some financial and legal due diligence as if the seller were a buyer, to identify any gaps or issues that may affect price or saleability.
Seeking a valuation
Businesses will generally be valued on one of three bases – the value of net assets plus a valuation of goodwill; a multiple of earnings; or discounted future cash flow.
Nick Smith, a family business consultant with the Family Business Consultancy, sees some families seeking the next generation pay the full market value for their interest, and other situations where shares are just handed over.
“In between the extremes,” says Nick, “there are a raft of approaches and solutions including discounted prices and stage payments. There are also more complicated solutions such as freezer share mechanisms, where no sale takes place but the senior generation lock in the current value of their shares to be left to the wider family and the next generation family members actually working in the business receive the benefit of any growth in value during their time in charge.”
What of an arm's length sale? Here David says: “The family will ideally want to be paid in cash, in full, at completion, rather than risk the possibility of deferred consideration not getting paid because the business gets into difficulties under its new owners, or a dispute arises over what should be paid.” However, he says that may not be possible, and there may be many good reasons why the retiring shareholders keep an equity stake or agree to be paid over time or agree that some of what they get paid is subject to future performance. Even so, he suggests starting with the idea of the ‘clean break’ and working back from there if you have to.
It’s important to remember that in a succession situation, where one generation is passing the business to the next, and the retirees are expecting a payment of value to cover their retirement ambitions, deferred payment risks may be looked at differently depending on the circumstances – families will be more trusting.
Tax planning and family succession
As might be expected, tax planning is important and should always form part of the decision-making process but it should never be the main driver. That said, no-one wants to hand over, by way of inheritance tax, 40% of the value of what they have worked for.
Both Nick and David consider tax planning key. Says Smith, “the most important point is what is right for the family members and the business itself.” He believes the UK offers a fairly benign tax-planning environment for family business succession so that most family businesses can be passed on free of inheritance and capital gains tax to other family members. However, the risk of paying a bit of tax pales into insignificance if passing on the family business to the next generation means passing on a working lifetime of misery and a failing business. David points out that if Entrepreneur’s Relief is available, the effective rate of Capital Gains Tax is just 10%.
In summary
Family businesses are peculiar entities, caught by both the need to compete in the marketplace and the need to keep familial factions onside. Whatever course is taken to secure the future of the business, one thing is certain – everyone needs to keep the lines of communication open.
