Automotive Aftermarket – Disruption and Opportunity – Part One
In this Three-Part series we discuss the Automotive Aftermarket:
- The Industry – Part One
- The Challenges and Strategies – Part Two
- The Opportunities – Part Three
Part One – The Industry
To succeed in today’s marketplace, leading companies recognize that aftermarket service can help differentiate them from competitors while providing highly profitable revenue. Recent surveys have demonstrated that approximately 50% of the profits made in the auto industry come from service and parts. Although the focus of the past was the way cars are marketed and sold, now we must place a greater emphasis on the after sales elements of service and parts. These elements can have a disproportionately large impact on the overall customer experience and the profitability of an organization.
While potential business value is high, new trends and the resulting execution poses significant challenges:
- Changes in customer empowerment and expectations
- Next-generation vehicles
- Shifts in competitive power
Add to these trends the reality that service delivery and parts supply chains are increasingly complex, involving an increasing number of SKUs, multiple paths of material flow, numerous and often competing distribution channels, and significant reverse logistics issues related to returns and part re-manufacturing. These challenges are confounded by low corporate investment in aftermarket operations, as commonly service and parts take a back seat to Original Equipment (OE) production.
SGC’s Perspective on Key Trends Impacting the Automotive After-Market
At SGC Partners (SGC), we believe that the automotive aftermarket will change dramatically in the coming years. A redistribution of aftermarket profits along the value chain will be led by electric vehicles, connected cars, and e-commerce, among other trends, to change the industry landscape.
New Sources of Value Generation – Big Data and Analytics
Today’s new vehicles generate 25 GB of data per hour. Analysis of this data provides competition-differentiating insights. Digitally collecting data can help to tune operations and increase revenues.
Experts expect big data to become a future competitive advantage. However, today, most automotive aftermarket players are not sufficiently prepared to take advantage of the big data opportunity. Over 70 percent of aftermarket experts hold that leveraging big data is only in the very initial phases of development. Those who move quickly have the potential to differentiate themselves from the competition.
Increased Expectations and Value Generation — Owners Expect More Than Ever Before
Customers are more empowered than ever with the aid of online comparison tools and reviews. Consumers expect their vehicles to require service infrequently, and when it is necessary, they expect same-day service or better. This expectation means that the service provider must have the parts available for immediate use, which in turn drives higher fill rate requirements throughout the echelons of the supply chain.
Vehicles Are More Complex — Driving Consumers to Professional Repair
Automobiles are becoming more sophisticated, and this has already begun to change the way we service cars. Electrification of the powertrain is one of the most noticeable trends due to the growing concern for the environment. With increasing electrification comes new component configurations. The proliferation of electrified power-trains further reinforces customers’ preferences for sustainability even after their initial purchase of a hybrid or EV.
Electric engines have fewer moving parts. Maintenance costs for battery powered electric vehicles are estimated to be 40 percent lower than for combustion engine vehicles. This phenomenon does not need to be a profit reduction as opportunities exist for improvement in appropriate skill-sets, offerings, and marketing, that match the growing desire for sustainability.
Software is Becoming Increasingly Central to Vehicles
Mechanic-based shops may have a limited place in the aftermarket of the future. Surveys show that 40 percent expect that services will become as important as parts. Remote, on board diagnostics can help OEMs identify technical issues early in the life-cycle. These software-driven closed-loop systems can quickly identify problems that permit software updates or optimize response times, minimizing the risk of incidents leading to brand-damaging litigation. The use of flash technology can also enable regular, incremental updates to existing product functionality.
Major OEMs are in the process of developing new electronics architectures for the vehicles of tomorrow. The car makers are taking the approach of high-performance central computing units replacing today’s old distributed computing architecture. As a result, the auto industry will face disruption, with new competitors, such as Google, Apple, Tencent, Uber, and Alibaba developing revolutionary new mobility solutions. Automated driving, although experiencing some set-backs, is clearly on the way, and the vehicle’s interior is moving to digital.
With the widening gap between technician capabilities and vehicle complexities, consumers will grow increasingly less confident that independents will have the ability to service these more complex vehicles. For all aftermarket players, there is an opportunity to gain a competitive edge by:
- Making their products and operations more sustainable
- Developing eco-friendly or even zero-emission supply chains
- Emphasizing “green” in their marketing communications
- Building their software skill sets
Read On:
Next, we will discuss “The Challenges and Strategies – Part Two”
- Common Pain Points
- Increased Investment in Information Technology — Source of Competitive Advantage
- Increased Competition from Dynamic Channels
- Automotive Aftermarket Service and Parts Issues and Strategies Vary by Vantage Point
- Original Equipment Manufacturers
- Dealers
- Suppliers
- Warehouse Distributors (W/D) and Retailers
