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.
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.
A bicycle made for who? Coronavirus, or to be more precise, the reaction to measures designed to mitigate it, is having a major impact on vast areas of life and business. Ideas that seemed far-fetched or at best niche this time last year are now just another fact of life.
Garages have seen the way they deal with customers transformed over the last few months as a result of COVID-19, and the pandemic is affecting the way people shop, work, travel and live. Lockdown led to changes in commuting habits, and a pull away from public transport which has so far benefitted garages. However, with high-end folding bicycle manufacturer Brompton launching a new subscription service in September, are we seeing yet another sign of an oft-discussed idea? Will increasingly tech-savvy consumers begin to veer away from car ownership?
Brompton’s subscription service enables customers to hire bikes from the company on a monthly or annual basis. Cycling has seen a surge in popularity in the UK in 2020, with riding levels up by 300% on some days according to the Department for Transport.
Users will be able to take on an annual subscription, when the scheme begins, at the cost of £30 a month, or a rolling month-on-month contract for £42 a month. A new Brompton can cost £1,000 to buy outright. The new subscription service is an extension to its existing bike hire programme, through which people rent a Brompton for £6.50 a day, or £3.50 if they pay a £25 annual fee.
Julian Scriven, Managing Director of Brompton Bike Hire, told the Daily Express: “This new subscription service will revolutionise the way people own a bike, giving them a premium product without the upfront price tag. It’s an option to make everyone’s life easier, whether you’re a commuter, student, family or just want to cycle on the weekends but don’t want to commit or have the space to own a bike forever."
Mobility
Revolutions have a habit of continuing to spin and spin far longer than anyone expects, with often surprising results. Before you rush off to find your old Che Guevara t-shirt though, ask yourself this – Will the current shift in buying and business patterns lead to a major drop in car ownership?
Vehicle subscription services already exist, and are often referred to as ‘mobility services’.
Providers, who can be a VM or a third-party, are paid a monthly fee for on-demand access to vehicles. The fee includes insurance, maintenance and roadside assistance. In the same vein as music or on-demand TV, the subscription can be turned off at any time. VMs already employing these models worldwide include BMW, Volvo, Jaguar Land Rover, Lexus, Mercedes-Benz and Audi.
Where does this leave independent garages, for whom the business model depends largely on owner-drivers who are responsible for sourcing their own servicing and repairs?
John Phillips, General Manager at subscriptions-focused software company Zuora commented: “Mobility-as-a Service (MaaS) has been hailed as a trend which could integrate and revolutionise the way city dwellers navigate their passenger journeys from one form of transport to another. Deloitte has claimed that, in dense urban environments, MaaS would offer such an improved journey and passenger experience that it could replace the need for many consumers to own private forms of transportation.
“In recent years, consumer appetite has demonstrated a shift from ‘ownership to usership.’ A recent mobility study published by Cox Automotive highlights that the desire to own vehicles is dropping steeply among younger consumers. Enticed by the relatively small fee needed up-front and the convenience offered, many consumers in cities do not now see the need to own a mode of transport.
“Many consumers are already used to a subscription-based consumption model. Zuora’s most recent bi-annual Subscription Economy Index (SEI) found that the subscription economy has grown more than 350% in the past seven and a half year, an era marked by a broad consumer shift towards on-demand services.”
John said VMs may look to make cars specifically for the subscriptions market: “To prepare for this shift in how people access transport, manufacturers should consider whether the vehicles of the future may need to be built with a subscription based payment model in mind. By developing unique, customised subscription offerings, they will enable customers to select the service which best suits them.
“It’s time for the mobility industry to take action,” concluded John. “Many notable technology companies including Spotify, Uber, Apple and even Google have changed their business models to adapt to evolving customer demand – moving from a static and linear product offering to a subscription-based model to encourage recurring, predictable and stable revenue. The mobility industry should follow suit.”
Questions
That’s the theory. What about on the ground with the garages? The IMI’s Head of Business Development Steve Scofield observed: “There is no question that the last five months have thrown a completely different light on life as we know it – from the transition to home working for many, to the reduced use of vehicles during lockdown. However, the latest data suggests that road usage has returned to almost normal levels; in fact the RAC reported that the August Bank Holiday weekend will have seen even higher numbers on the roads – 1.8 million – than for the break in 2019, no doubt prompted by restrictions on foreign travel and the preference for many to stay in the UK. And I think that highlights the changing dynamics of vehicle usage which is going to present our sector with challenges and opportunities in equal measure.
“The ‘working from home’ culture is here to stay for those that can – but there is also a recognition that people work best when they can interact with others – and not just on Zoom. Work colleagues are therefore likely to look for ways to meet which will still rely on transport – whether public or private. A reaction to the halt on family meetings during lockdown has also, I believe, prompted more visits since lockdown was lifted. And again, the reliance on private transport is key here.
“So what’s the role of the garage in all of this? Well I think first of all garages need to find ways to stay more engaged with their customers than they might have done in the past. For some, reduced vehicle usage could prompt ditching the car altogether, but I think for many with latent concerns about public transport, the car will still be a vital tool for work and family life – maybe just used slightly less often. A good garage should think about how to stay connected with its customers for all the basics – not just the annual service and MOT – and embrace digital solutions where possible. Young talent entering the garage network are well positioned and can add value in helping garages transition to online solutions.
“Garage owners could also benefit and future-proof their business by horizon scanning. For instance, one area which has the potential to grow as some of society moves to an on demand mobility model instead of ownership is the rental and fleet sector. Their maintenance and repair needs will likely grow; therefore engaging in these contracts could offset any personal vehicle ownership losses garages may face.”
Transition
There’s more to think about though according to Steve: “The other factor that I think presents a real opportunity for motor retailers and garages is the increased prevalence of ADAS technology in vehicles, as well as the transition to the road to zero. The latest advances in motoring technology will require experts. The garages that will be the winners in this new world will therefore be those that place the right investment in training for their people. Organisations like the IMI and its approved training centre network will be crucial in providing the essential expertise and support for that training.
“There are some really big challenges facing the automotive sector in the next 10-15 years, not least of which is the proposed ban on the sale of new petrol, diesel and, potentially, hybrid vehicles. The continuing development of autonomous motoring, in all its guises, is another big challenge for the sector.”
Steve concluded: “While these challenges can appear daunting, the IMI is excited to be working with individuals, employers and Training Centres to ensure that motorists are given the confidence that their safety and wellbeing will always be paramount.“
Alternatives
Frank Harvey, Head of Membership Services at the IGA commented: “COVID-19, lockdown and the lifestyle changes this has brought about are something we are all having to get used to. The ways by which we choose travel is also changing for many; with the government asking people to avoid using public transport, we are seeing people seek alternative means for their daily commute.
“Public transport has long been the most popular mode of transport for many city dwellers, meaning they avoided the outlay of owning a private vehicle. As the country edges its way out of lockdown and central government is encouraging people back to work, commuters are considering their mobility options.
“While car sharing between separate households is not currently an option, it is likely we will see a growth in services such as Hiyacar, Zipcar and Enterprisecarclub, all of whom offer a ‘Hire By App’ kerbside pickup/drop off, hourly hire, vehicle mobility solution.”
Downsides
Is there a downside? Frank said there are several: “Experience shows us that due to the nature of the drivers who make use of this type of mobility solution, vehicle care and consideration is not always a priority. Couple this with potentially ‘rusty’ driving skills. Contrary to initial thought, these companies could offer business opportunities for good, local independent garages to keep their vehicles safe, roadworthy and available for hire.
“A government survey published in 2019 showed that, other than cost savings, there was more of a negative attitude towards vehicle and ride sharing than there was a positive one, however recent events may have made this a more attractive option than using public transport.”
Vital
Perhaps we are worrying about nothing though: “Due to the ways in which most of the country has had to adapt to new working and living routines during lockdown, such as working from home and purchasing goods online, we have without doubt seen the number of miles being driven in private cars reduce over recent months, with a low in early April of 22% of pre-lockdown vehicle usage. However, from the beginning of August we have seen this recover to around 91% of the pre-lockdown figure, which would indicate that the private car is still a vital social utility.
“As a nation we have a culture of ‘ownership’ especially when it comes to a private vehicles; with over 38 million licenced vehicles on our roads, of which 27.5 million were registered between 2000 and 2017, it is reasonable to assume that the majority of those vehicles over three years old are privately owned.
“Recent press articles would indicate that the aforementioned city dwellers are beginning to purchase cars at the lower end of the value range, to avoid using public transport. All will need MOTs and undoubtedly repairs and maintenance of some description, which is all good news for independent garages and the aftersales market as a whole.”
Frank added: “There is one key indicator from our recent global experiences, and that is the need for all businesses to have a good online identity and the ability to be able to connect to their customers in a way that reduces face to face contact, but also give the customer confidence in the organisation they are doing business with.”
Final thoughts
Whether or not motorists will embrace subscriptions in large numbers remains to be seen. However, looking at how you run your business from a different perspective will help you to innovate and take advantage of new opportunities.
Remember, often garage owners take some time to realise that they are not in the business of just fixing cars, and that they are instead in the business of running a business. In the same vein, you thought you were in the vehicle repair industry didn’t you? You’re not, you are in the mobility sector. If it is changing, you will need to change too. That might mean completely re-thinking how your businesses is structured. Issues around the price of battery replacement has already helped to accelerate the leasing model in electric vehicles, which was already popular.
One thing COVID-19 has shown us though is that when change comes, you can’t always predict where it will come from, or what the result will be. You just have to roll with it sometimes. Whether or not you own the vehicle that carries you, that’s up to you.
