clear view of the aftermarket

Aftermarket speaks to Clearwater International about the trends affecting the aftermarket, as laid out in their recent report

Published:  15 April, 2019

While many garage businesses in the sector probably have a pretty firm idea of what trends and changes are affecting their businesses, it is always helpful to be able to look at the whole picture and see where you fit in. This means you can see where you are, and gives you an idea of what to expect going forward.
    
With this in mind, a recent report on the global automotive aftermarket from corporate finance house Clearwater International provides a useful view of the trends influencing the sector, taking in the local, regional and global landscape.  Overall, liberalisation of the market, changing technology and shifting consumer habits and expectations are identified as being the key drivers in the way the sector is moving.
    
On liberalisation, the changes have a range of aspects. On one hand there is increasing penetration by OEMs looking to claw back market share in terms of supplying parts to the traditional garage sector. At the same time, OEMs are obliged to provide information about the exact identification of replacement parts, albeit on their own terms. The report pointed to ‘European automotive aftermarket landscape,’ a report from BCG, which observed that independents have been effective in broadening their market share at the expense of the manufacturers and their networks.
    
OEMs are also looking to take back a piece of the market through the formation of aftersales networks. Another part of this trend has been the increasing ability consumers have had to use aftermarket providers to service and repair newer vehicles, as seen through the Block Exemption Regulation (BER).
    
Changing technology in terms of the emergence of electric vehicles and hybrid drivetrains is having an impact. Back in the workshop, key drivers going forward, according to the report, include digitally enabled services, telematics, e-commerce and 3D printing. Remanufacturing is also seen as having a strong place in the future, with OEMs investing in the segment.
    
The report found that the average age of cars in the EU is 11 years, an age that puts a major chunk of the transcontinental car parc firmly in independent garage territory, is certainly good news for garages.
    
The picture looks bright in fact. The report cites a finding from Frost & Sullivan’s ‘Global automotive aftermarket outlook 2018’ that showed global automotive aftermarket demand was set to rise by 4.4% in 2018, a view shared by many sector analysts according to Clearwater’s report. Another forecast that the report pointed towards, ‘The changing aftermarket game’ from McKinsey, predicted that the market will have a worldwide worth of €1,200bn by 2030. On that basis, underlying global growth on a year-by-year basis would be 3%.
    
Speaking to Aftermarket about the report, Tobias Schätzmüller, Partner and International Head of Automotive at Clearwater International said: “There are a lot of challenges out there for the aftermarket, as well as  opportunities. First of all, the liberalisation of the independent aftermarket. I think this gave it a boost. Also, technology-wise, there are new entrants. Some pose a threat but also offer many opportunities. Then, of course, there is the powertrain discussion, connected vehicle, and autonomous driving, which will all change the picture.”
    
One of the aspects the report covered was the ongoing trend of mergers and acquisitions taking place in the sector. The report cited the ongoing purchase activities of LKQ Corporation and Euro Car Parts as an example. It also pointed out the purchase of The Parts Alliance by Uni-Select two years ago, as well as the acquisition of Borg Automotive by Denmark’s Schouw.
    
Tobias thinks the smaller suppliers will continue to gravitate towards larger companies:  “We see from the M&A analysis that there are still a lot of small and medium-sized businesses around, in small units but with a relatively limited range of products. They are now trying to redefine themselves in terms of international reach, as well as in terms of covering additional markets, and product ranges. For some of them, they recognise it is not possible to gain scale on their own, so they are joining forces with others.”
    
Expansion is the keyword: “There have been a host of cross-border transactions. In the report we have published a list of many of the deals that have been completed in recent years. Every month there are new deals going through. We are advising players to grow and refine their strategies, and they are bringing access to new product categories. We also advise those players to invest in technology, into automatic warehousing etc. That is the challenge, but for some of the players it is an opportunity to develop greater professional capability, and grow through investment.”
    
Tobias then pointed out the key trends where businesses need to pay strongest attention: “On the environmental side, it is certainly the change in the drivetrain, with electric vehicles coming in. Nobody knows in the future when, or even if, this dramatic shift will happen but I think everyone still believes we are in a mixed period of combustion engines, hybrids, and electric vehicles. However, if you look 10 or 20 years into the future, the prevalence of electric vehicles will be much stronger. This will of course change the complexities of the engine, and the powertrain. This means less components and less moving parts which is a threat to the spare parts market, although the components in an electric vehicle might have a higher average value per unit. However, this would probably not compensate for the very complex engine that is now in use in combustion engines. There will be a reduction of complexity and, assuming that with the numbers driving there may be less accidents, which will also have an impact on the spare parts business.
  
“On the exterior side, there will be pressure from OEMs because they now see an opportunity. While increasing liberalisation has seen the independent aftermarket gaining market share, with all the e-solutions in the car, it is possible for an OEM to be the first to provide pre-emptive maintenance. If the car has to go to the garage, they are the first to know that and can make use of this information. They are all desperately looking for alternative profit streams beyond the process of selling hardware, i.e selling a car, which is also a driving factor.”
    
For the garage on the ground this may seem a long way off, but there is a way forward. “I think it is important to offer the whole spectrum of products, to be present everywhere and to reach a critical size so the parts can be sourced cheaply, and they have more marketing power. Additionally, they also need to increase their competencies, to be able to offer customers the wider range of products.”
    
On the potential impact of Brexit on the aftermarket, Tobias said it was too early to be drawn on likely outcomes: “Parts supply either comes from the OEMs or tier one suppliers, or it is sourced in Asia. I don't know, looking at the UK market, whether they would have problems sourcing parts from abroad. It depends on what the regulations will be, but Brexit will probably have an impact.”
    
On whether concern over Britain’s exit from the bloc is warranted, Tobias speculated: “I trust that they will find an economical and reasonable solution. Brexit concerns the UK most, but given the highly integrated automotive value chain, it will also affect the continent.”
    
Looking ahead, Tobias concluded: “There will be continued consolidation in the market. In the independent aftermarket there is a lot of activity, with many M&A transactions coming up. We are actively tracking this. Companies will seek to be more international, aiming to cover more markets, and will get a broader cross-section of products. On the technological side, advancements in connectivity will mean more preventive maintenance, and overall professionalism within the market will increase. Transparency will also continue to increase thanks to the impact of the online world, and that will have an impact on price.”

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  • Walkabout: The Australian adventure 

    Having just spent three weeks touring New South Wales, while delivering two training events, firstly in Sydney then Canberra I thought it would be interesting to compare how our two different, but also similar markets operate.

    The visit began several months ago with an invitation from a good friend Bob Whyms, Australia’s prominent Porsche specialist in Sydney. The offer comes as part of a training group called Australian Aftermarket Service Dealer Network (AASDN). This is a group of totally independent service and repair independents across the whole of Australia.

     It was formed from disillusioned members from the Bosch Aftermarket Service Dealership Network, or BASDN. Around 70% agreed to form AASDN with the view of promoting mutual support and training across the whole of the continent. Members pay a subscription to a fund that provides venues and trainers across the continent. My understanding is they number about four per season.

    Mutual respect
    It is important to understand the incredible geographical constraints yet obvious bond they share for their independence and mutual respect. If I may reflect on our very own Autoinform event in Harrogate in November, where I am sure all attendees would recognise the same sentiments from the AASDN group.

    I was also privileged to visit several businesses in both Sydney and en-route to Canberra. The BWA Porsche specialist host and first training venue, based in the western suburbs, provides genuine expertise in depth from Bob and now also his son Craig. This ranges from servicing to performance upgrades.

    BWA provide a parts service across Australia importing directly from Germany. They also provide a comprehensive machine shop service, which supports their engine remanufacture and performance business. Bob and I had fun reflecting on Bosch D Jetronic and other early evolutions of fuel injection, grumpy old men and all that!

    I was then treated to a visit to a highly respected Mercedes tuning expert close to the airport. Then finally, a very talented young technician specialising in DPF cleaning. The focus on training included ignition diagnostic technique, common rail and direct gasoline injection.

    It was both a pleasure and privilege to share the enthusiasm from the entire audience, their knowledge and interaction was mutually appreciated.

    In a far too brief visit to Dubbo, my good friend Paul gave me an insight into the more remote reaches of the trade. I was equally impressed with the dedication and superb workshop facilities. I also experienced several near-misses from kangaroos!

    Special mention
    I should give special mention to  my incredible visit to the Bathurst 1000 race. It is an institution among fans and an incredible two-mile hill town circuit, constructed from urban roads. AASDN host a VIP lounge for their members.  Imagine that at Silverstone! It only takes commitment and support with a little cash.

    One week down, heavy rain and in the good company of Alan, a diesel shop owner, we travelled down the coast, whale watching in Huskisson Bay. Then onto Canberra, via AASDN committee member Alan. Despite having just lost his home and all his possessions from a bush fire, Alan remarkably still provided accommodation in his temporary rental home.
    Our hosts in Canberra, Derek and Ros, operate a large high-end diesel specialist shop. The second training event was a mirror image of Sydney, supported by a second incredible array of AASDN members. Incredible not just for their knowledge and confidence but their interaction over the three days.

    The evenings from both events was spent socialising in steak houses chatting over mutual challenges. From my experience the vehicle market share was quite diverse, lots of Asian cars, and a remarkable number of VWs. It was a surprise to learn that that both Ford and Holden have ceased production in Australia due to a lack of competitive pricing. I was told of a delegate who attended the Canberra event who heard of my visit two days before the Friday start, purchased a flight, closed his workshop and travelled from Perth to attend. It is a 3,000km journey. To put that into some local UK context, I once had a conversation with a parts distributor in Kent several years ago, when a training event had to be relocated from Canterbury college to Ashford, 17.5 miles away. He cancelled the whole event without asking the delegates. The reason? He said, “they won’t travel that far.”
    I see little differences between our two cultures. I find the same dedication and passion. Sadly for the UK, they seem to have more of it.




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  • A tale of two garages  

    It was the best of times, it was the worst of times. Well, it certainly was for a member of the Aftermarket team recently, who had a small automotive hiccup in the family.
        
    You wouldn’t expect that the need for a fresh set of sparkplugs in a top-selling mass-market runaround could expose the existential crisis facing some garages who are facing extinction as their ability to service cars fades away, but that is what we found. Luckily for our colleague, and for the sector we also found a business who was the very opposite of that type, one that was totally on the ball. A lot can be learned from this second garage in terms of what to do. Even more can be learned from the first garage, in terms of how not to run your business.
        
    The only upside was that that business had a local doppelganger who was paying heed to the kind of advice peddled here in Aftermarket every month. There is a happy ending, dear reader, but first you have to travel through the heart of darkness that can be found in a business where trundling along towards obsolescence is seen as sound business planning.

    Safe mode
    Let’s find out what happened to our colleague: “We have a couple of cars in our household,” she told us, “one is a BMW 3 Series, which I drive, and the other is a an up-until-now spritely 2014 – registered Vauxhall Corsa, which is one of the most popular cars in the UK, and has been in the top 10 highest sellers year-in-year out for decades.”
        
    As an aside, according to the sales figures for 2018 as published by the Society of Motor Manufacturers and Traders (SMMT), the Vauxhall Corsa was the third highest selling car of the year, with 52,915 sold during the year.  
        
    Anyway, back to the story. After years of problem-free  motoring in the Corsa, a few weeks ago it switched into safe mode – with its service spanner light beaming orange on the dashboard. There were no warning signs prior to this.
        
    “As soon as we realised we promptly took it  to a local independent garage.”
        
    This is where things started to go sideways: “After a brief peek at the car, the technician announced they couldn’t access the information and that the vehicle can only be dealt with by a main dealer… which was easier said than done, as the car was only capable of travelling at  5mph and the nearest main dealer was more than six miles away.”
        
    Now, as she was part of the Aftermarket team, she already knew there was something not quite right here: “When asked the reason why the garage couldn’t access the information, the technician claimed that the manufacturer was withholding access for certain faults, so no other independent would be able to rectify the problem with the vehicle.” The technician then sent our team member off to find the nearest Vauxhall dealer, a business that runs the Griffin franchise alongside a mainstream French brand, in the next town.
        
    Now, we know that the Block Exemption Regulation is not a free invitation for everyone just to dig their hands into the big info bin at the vehicle manufacturers, that access might require payment, but withholding access from the independent sector? That would be newsworthy.
        
    At this point, our staff member was more concerned about getting the car fixed than she was about the intricacies of European competition law. Like any motorist with a poorly car being overtaken by cyclists, she just wanted it fixed: “The thought of the long slow drive to the nearest dealership, who incidentally said they would not have availability to take the car until the following week, was beginning to cause much anxiety.”
        
    Bad news all round at this point. Fortunately for our colleague, this is where the story takes a happier turn, with the entrance of the second independent garage: “Halfway on the arduous journey home we discovered another independent garage offering diagnostics on every vehicle marque. So on the off-chance this garage could help we dropped the Corsa there and they assured us they would do their best to help. An hour later we received a call from the garage to say that they have gained access to the vehicle and that it requires a new coil and set of spark plugs. Within a couple of hours the car was fixed and back to its spritely-self. Not only that, it is booked-up with this second independent garage for its MOT next month.”

    Consequences
    As we said, we did not mean to perform a regional mystery shop on random garages across Kent, but here we are. Let’s ask our accidental shopper what she though about the businesses she visited: “The first garage should have updated its equipment, especially bearing in mind that a Corsa is one of the most common vehicles on UK roads, then perhaps they would have kept the business. They also lied to us about the reason they were not able to fix the vehicle.”
        
    Long term, this was probably the most serious transgression made by the first garage during the whole experience: “By not being honest they lost the trust of the customer and looked as though they did not know what they were talking about. The first independent garage has now lost any future business from us, which includes family and friends too. All because they weren’t honest.”
         
    Let’s look at the outcome for garage number two: “The second garage has proven itself to be knowledgeable and efficient and has gained not only the trust of the customer but also additional trade from the customer’s friends and family.”
        
    As for the franchised dealer: “There’s nothing to say about them. They could not even fit us in, which again does not endear them to the customer when they are in great need of reassurance and support from a professional business.” Quite.
        
    As our mystery shopper points out, this is a market where you can lose your customers very easily, but you can also win them pretty easily, as long as you have made the required investment in training, tooling and access to data: “The independent garage sector is a highly competitive market where customer trust is key, along with the right equipment and training.”

    One last word from our colleague, who as a stalwart of the magazine is fiercely loyal to the sector: “I also want to point out that apart from having failed to have the ability to access a five year old mass market runaround, the first garage attempted to take business away from other independents as they tried to  send  the car straight to the main dealer. Whatever happened to solidarity in the world of independent garages?”
        
    What indeed?

    Conclusions
    Let’s look at what we have learned from the misfortunes of our team member. The immediate takeaway here really is the need for honesty. If you don’t have the ability to work on a car for any reason, just tell advise the customer and direct them to someone who can help. You never know who you are talking to, and what they know, and this is a classic example of why honesty is always the best policy.
        
    The deeper takeaway though is the need to invest and train, and to train and invest. In the February issue of Aftermarket, in Big Issue, we asked if our readers had paid attention to the sales figures in 2016, as this might give them a clue as to where they need to point their investment. The one thing we know for sure is that the first garage visited did not look at the top sellers for 2014, as if they had they might have realised that a Vauxhall Corsa from that year might come through the door sometime after 2017.
        
    Even if you are not marque-sensitive, all vehicles are becoming more complex, and having the right tooling, and the ability to properly use it is absolutely essential. If you can’t interrogate the third most popular car in the country, and you have to send that car down the road, you are heading for the scrapheap, whether or not you were honest with the customer or not. We know it takes money to train and buy equipment, but there is so much support out there, it would be foolish not to reach out to get a grasp on tomorrow.
        
    You don’t even have to look far to get support. You do not have to get up and walk to your computer, or even lift your hand to pick up your mobile phone. You just have to turn the page.
        
    Every issue in Aftermarket, we have a whole section devoted to business. We have another section covering training courses, and another covering technical advice. In most of the features there will be advice on the kind of tooling required, and on the new tech heading your way. Also, as much as we hate to admit it, we are not the only place to access this information. Many sector suppliers offer training, and there are specialised training companies and courses. You can attend live training courses via the IMI, or the RMI via its Academies, or you can access training online.  We have even heard that there are other magazines covering the sector, although we think that may just be a rumour…
        
    The point is, there has never been more information available, online and in print. As our regular business contributor Andy Savva, The Garage Inspector, is prone to say: “There has never been a better time to run an independent garage.” He provides business training, and as part of that training  he will advice businesses to invest in kit, and invest in people. He’s not the only one either. Leaf through and you will see a host of famous names who offer technical content in this magazine. In no particular order, except perhaps alphabetical, you have John Batten, Peter Coombes, Ian Gillgrass, Hannah Gordon and of course Frank Massey. All are either regular technical contributors, or have written for us in recent months. If you go back further there are even more names providing priceless technical content. That’s just Aftermarket. Many of our contributors run courses, and they are not too shy to talk about it, so read their articles and find out. Many of our advertisers also provide training, either at their own facilities or at various trade events like Automechanika Birmingham or Mechanex. We will tell you and point you in the right direction.
        
    Despite this, despite the investment being made by thousands of garages that receive and read Aftermarket, there are still those who don’t keep up with the technological direction of travel, let investment slide, and decide against that extra round of training that will help them keep their competitive edge. If you are intending to shut down, we can understand it, but if not, if yours is a going concern where you are looking to operate through 2019 and beyond, then you need to keep up to date with technology, and make sure you are taking all the relevant training.

    Summing up
    We call this an accidental mystery shop, and in a way it was. We are sharing the experiences of our team in a friendly way to show what a customer might experience, to point you in the right direction. Don’t forget though, there are millions of potential customers out there, and for them it is not a theoretical exercise. They will make a judgement call on your business based on your performance. If you provide a poor service they will make their voice heard by disappearing from your forecourt, never to be heard from again. A garage that can deal with their customers competently and honestly will have them return again and again. You can count on it.

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