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
- 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.
- Connecting to tomorrow’s lean workshop
In a previous article, I had written about the fourth industrial revolution, but I suspect that this may not have been the most threatening topic that you were thinking about concerning your day-to-day workshop business – the business of diagnosing and repairing cars, using a range of workshop equipment and agreeing ‘partnership’ relationships for the technical data and replacement spare parts.
The way that you work may have evolved over the years, mainly due to the increasing vehicle technology, but the basic principle has remained the same. You have customers who choose to come to you due to the good service and competitive pricing that you provide. However, the world of vehicle repair is changing and if you do not adapt, you will die. Unlike previous industrial revolutions, the pace of change is now much faster. So how is this going to impact the aftermarket?
Approach
The ‘internet of things’ (IOT) will change the approach to diagnostics, service and repair of vehicles, but also the way that the workshop equipment will be connected, the way that you handle your customers’ data and the way that you exchange data outside of the workshop, both as a consumer of data, but also as a data provider in data trading eco systems. All this will change the way that you do business. This might all sound like some science fiction concept, but this is already happening today with many vehicle manufacturers and their associated main dealer workshops. If the aftermarket does not start to develop the same approach and service offers, then it will not be able to compete.
However, to understand this better, let’s start with today’s ‘classical business model’ and then see what will change. Today it all starts with your ability to directly communicate with both your customer and with their vehicle and (for the more difficult jobs once that vehicle is in the workshop) your ability to offer a competitive quotation.
Once the vehicle is in your workshop, the diagnostic work or the replacement parts are identified, the parts ordered and the ‘complete repair process’ is conducted. However, there are three fundamental aspects to ensure that this process can be fulfilled – firstly, being in direct contact with the customer, secondly, being able to directly access their vehicle via the OBD plug and subsequently its data and thirdly, using that information to conduct
the complete repair process in the workshop.
Internet of things
So, what is changing and how will the ‘IOT’ help to implement new and ‘lean’ business models to remain competitive? It will still all start with the ‘repair process’, but this will no longer be with the customer initially calling you or coming into the workshop with a question of ‘can you fix my car?’, but it will be through remote monitoring of the ‘thing’ – the vehicle (via OBD plug-in devices or in-vehicle telematics platforms) to conduct remote diagnostics, prognostics and predictive maintenance services. This will inform you when the vehicle needs work and should lead into being able to contact the customer and offer a competitive quotation for the work needed that ultimately should still result in the vehicle coming into the workshop.
When the vehicle does arrive, you will already know the details of the vehicle and the necessary work, so can configure the workshop resources (which ramp, what workshop equipment, what technical data, what replacement parts etc.), before the vehicle arrives.
You can also ensure that the various ‘external data’ that may be needed for the job is pre-arranged and can be downloaded into the specific workshop equipment which is needed as part of the repair process. This can be a ‘just in time’ download of the technical data, the diagnostic test routine, the replacement part fitment method and so on. All this can easily reduce the workshop time needed to complete the repair process by 50%.
Captured
This may already sound like a great move forward to be lean, more profitable and more competitive, but there is even more! You also now have new ways to use the data that you have captured. Not only will you know the faults of the specific make and model of vehicle, which in turn, you will store in your database (non-personal, machine generated data), but you will also be able to use this data to exchange or trade data with your existing suppliers or other (new) partners to reduce both your costs and theirs. Welcome to the world of data trading – and get used to it, because it will be your future. The internet of things, means linking to the ‘thing’ (e.g. the vehicle and workshop equipment) and then handling the data created, by using it in new ways to make the whole workshop and vehicle repair process more efficient, as well as supporting new business models beyond just what you can do today in the workshop. However, let’s also take a step back and look at workshop equipment as part of ‘the internet of things’. It already starts with a new range of ‘connected’ workshop equipment that will not only be able to be remotely monitored by the equipment manufacturer to ensure better reliability, together with faster and cheaper repairs, but will also be the basis for ensuring that the technical information you require for the job ‘in hand’ is supplied not only ‘just in time’, but also charged for on a new competitive bidding basis from a range of suppliers and charged on an individual job basis. Going a stage further, you may be able to exchange data with your equipment suppliers so that they can collect ‘big data’ from all their customers and use it for their own new data trading business models and in turn, use this to offset supplying data or services to you at
a lower cost. This may also apply with your parts suppliers to provide them with better forecasting and trend analysis.
Data centric
The classic business model of today that is ‘customer centric’ will change to become ‘data centric’ that creates added value to the consumer’s experience, but also to the service provider – you!
This change of accessing the vehicle, your customer and use of the vehicle-generated data is a disruptive evolution that will drive (no pun intended) a revolution in the aftermarket. However, the key issue will be the ability to access the vehicle, its data and in-vehicle displays to offer your services when the vehicle needs work and that is likely to be a legislative issue as the vehicle manufacturers try to use their technological advantage to dominate and control tomorrow’s repair and maintenance business. It’s up to you to fight not only for your ‘right to do business’, but for your ability to evolve your current business models into those of tomorrow.
- Small Steps = BIG Results
There’s no doubt about it- the technical challenges that face an independent workshop grow daily and this has the ability to not only affect the commercial performance of the business but also the morale of those at the sharp end.
