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AUTOMOTIVE Insights AUTOMOTIVE COMPETENCE CENTER CLIENT MAGAZINE Issue 02.2013 COVER STORY HOW WELL DO YOU KNOW YOUR CUSTOMERS? Smart customization in aftersales STRATEGY TIRES AFTERMARKET Chinese manufacturers set to bounce back A LOOK AROUND THE WORLD REGIONAL INSIGHTS Aftersales in the US, Brazil and CEE INTERVIEW DR. MARKUS SCHRAMM The Head of Aftersales talks about BMW's goals NEW! INSIGHTS – eMAG FOR DETAILS PLEASE SEE PAGE 9

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    AutomotIve

    InsightsAutomotIve CompetenCe CenteR ClIent mAgAzIne Issue 02.2013

    Cover story

    How well Do you know your Customers?Smart customization in aftersales

    strategy

    tires aftermarketChinese manufacturers set to bounce back

    a look arounD tHe worlD

    regional insigHts Aftersales in the US, Brazil and CEE

    interview

    Dr. markus sCHrammThe Head of Aftersales talks about BMW's goals

    new!insigHts

    emag

    FoR dETAIlS

    plEASE SEE

    pAgE 9

  • AutomotIve Insights | 02.2013 51AutomotIve Insights | 02.2013

    Belgium Didier tshidimba

    phone +32 (2) 6610 317 [email protected]

    Cee Rupert petry

    phone +43 (1) 53602 101 [email protected]

    CHina Jun Shen

    phone +86 (21) 5298 6677 890 [email protected]

    Junyi zhang phone +86 (21) 5298 6677 890 [email protected]

    CZeCH rePuBliC Constantin Kinsky

    phone +420 (2) 10219 552 [email protected]

    Roland zsilinszky phone +420 (2) 10219 551 [email protected]

    franCe max Blanchet

    phone +33 (1) 53670 946 [email protected]

    Sebastien Amichi phone +33 (1) 53670 946 [email protected]

    germany Ralf Kalmbach

    phone +49 (89) 9230 8314 [email protected]

    marcus Berret phone +49 (89) 9230 8737 [email protected]

    Ralf landmann phone +49 (69) 29924 6301 [email protected]

    Dr. Wolfgang Bernhart phone +49 (69) 29924 6301 [email protected]

    Jrgen Reers phone +49 (89) 9230 8511 [email protected]

    norbert Dressler phone +49 (89) 9230 8511 [email protected]

    philipp grosse Kleimann phone +49 (89) 9230 8511 [email protected]

    Dr. thomas Schlick phone +49 (89) 9230 8737 [email protected]

    Dr. marcus Hoffmann phone +49 (89) 9230 8037 [email protected]

    inDia Dr. Wilfried Aulbur

    phone +49 (89) 9230 8108 [email protected]

    italy Roberto Crapelli

    phone +39 (02) 29501 257 [email protected]

    Alberto de monte phone +39 (02) 205011 0 [email protected]

    JaPan Dr. Satoshi nagashima

    phone +81 (3) 35876 385 [email protected]

    Keisuke Yamabe phone +81 (3) 35876 695 [email protected]

    Dr. martin tonko phone +81 (3) 35876 697 [email protected]

    malaysia Anthonie versluis

    phone +60 (3) 2203 8611 [email protected]

    miDDle east michael Wette

    phone +973 (17) 56795 0 [email protected]

    netHerlanDs Ren Seyger

    phone +31 (20) 7960 608 [email protected]

    nortH ameriCa marc Winterhoff

    phone +1 (248) 729 5116 [email protected]

    thomas Wendt phone +1 (248) 729 5116 [email protected]

    PolanD Krzysztof Badowski

    phone +48 (22) 32374 62 [email protected]

    russia Dr. uwe Kumm

    phone +7 (495) 287 92 46 [email protected]

    sCanDinavia per I. nilsson

    phone +46 (31) 75755 14 [email protected]

    per m. nilsson phone +46 (31) 75755 10 [email protected]

    singaPore Joost geginat

    phone +65 6597 4566 [email protected]

    thomas Klotz phone +65 6597 4566 [email protected]

    soutH ameriCa thomas Kunze

    phone +55 (11) 3046 7124 [email protected]

    Stephan Keese phone +55 (11) 3046 7124 [email protected]

    turkey Doruk Acar

    phone +90 (212) 358 6401 [email protected]

    Automotive Competence Centers Worldwide

    Editorial

    dear Reader,

    The automotive year 2013 is proceeding apace, and highlights like the International Motor Show in Frankfurt (IAA) are just around the corner. To make the time before the trade fair pass a bit more quickly for you (or to provide you with some reading for your summer break), we have published this new issue of our Automotive Insights magazine.

    Its focus is the aftersales and aftermarket business, which is gaining importance in various markets. In contrast to the sale of new vehicles, aftersales has been neglected for quite some time and needs to be developed and professionalized.

    The biggest challenge and hence the biggest opportunity is the current lack of customized offerings, as our experts examine in the cover story. Using the german market as an example, they analyze the various customer groups and their special needs, emphasizing the imperative of customized services in the battle for customers. Individualization is also a major theme in our interview with dr. Markus Schramm, Head of global Aftersales at BMW group.

    As an international consultancy, we aim to provide you with global insights. That's why this issue looks at the aftersales business in three different regions: the US, Central and Eastern Europe and Brazil.

    By the way, don't forget to download the eMag version for tablets from the Roland Berger Kiosk. There you'll find plenty of extra content, viewable on both ioS and Android devices.

    If you want to share your views on any of the topics we have covered or if you have any questions, please call my colleagues or myself, or just drop us a line. I look forward to your feedback. But until then, I wish you insightful reading!

    Kind regards,

    Ralf Kalmbach

    ralf kalmbachpartner and member of the executive CommitteeRoland Berger Strategy Consultants

    Published by:Roland Berger Strategy Consultants gmbH, mies-van-der-Rohe-Strae 6, 80807 munich

    editors-in-chief: Ralf Kalmbach and Ralf landmann

    editors:Jan-philipp Hasenberg, Christian Weber, Swen Beyer, Sven Wittmaack, RB language Service

    layout:RB media Design

    Printed by:girodruck, Hamburg

    Photo credits:Cover: RB media Design . page 2: Roland Berger Strategy Consultants gmbH . p. 4: plainpicture/mira . p. 5: picture-alliance/estadao Conteudo . p. 10: istock . p. 13: istock . p. 14: mopar . p. 18: istock . p. 23: istock . p. 24-25: RB media Design . p. 36: RB media Design . p. 38: norbert Wilhelmi . p. 40: norbert Wilhelmi . p. 41: li zhong/laif . p. 42: Corbis . p. 50: porsche Ag

    Many thanks to car mechanic Erwin Zott for letting us take photos in his repair shop in Munich. Thanks also to all Roland Berger staff who lent us their car keys for the cover photo.

    Circulation: 3,900, published three times a year.no reprints without prior permission of the publisher.

  • 3Automotive insights | 02.2013

    41

    46

    49

    384

    10

    18

    24

    50

    A look Around the world

    BrazilA challenging aftermarket with bright prospects

    USAAfter years of neglect, OEMs now recognize the importance of aftersales

    Central and Eastern EuropeSize matters survey on the maturity of the aftermarket in CEE countries and major trends shaping the industry

    Cover story

    Customizing aftersalesHow OESs as well as independent players can better understand their different customer segments to offer appropriate individual services

    IntervIew

    Aftersales at BMWDr. Markus Schramm, Head of Global Aftersales at BMW, talks about the need for service differentiation

    strAtegy

    German tires aftermarketWhy tire manufacturers from China are bouncing back

    strAtegy

    AlliancesPreview of our new global study on global alliances in the auto industry

    Books & studIesThe latest Roland Berger publications at a glance

    FAmous CArsPorsche 993 S Coup "Vesuvio Metallic"

    10

    18

    41

    Table of contents

    24

    4

  • 4 Automotive insights | 02.2013

    BRAzil

    Ample growth opportunities in A chAllenging environment

    Dream destination copacabana: Brazil is an attractive aftersales

    destination, but not necessarily an easy one

    A look Around the world

  • Automotive insights | 02.2013

    Over the last years, Brazil has received increasing attention as the country grew into the fourth largest market for new vehicle sales in the world, leaving other major global

    markets including Germany, Russia or the UK behind. in 2012, the market accounted for 3.6 million passenger cars and light commercial vehicles and 170,000 commercial vehicles. For 2013, the outlook is stable on the passenger car market and a 10% rebound is expected for the commercial vehicles market.

    On the aftermarket, however, things are still quite different. Despite a running fleet of just below 30 million vehicles, Brazil's aftermarket is still significantly smaller than for other countries. Official figures are hard to come by, but Roland Berger estimates the passenger car aftermarket at roughly USD 10 billion related to the revenues of original equipment (OES) and independent aftermarket (iAM) suppliers. Thus, the average Brazilian spends only USD 300 per year on parts, less than half of their European or US American counterparts. Why is that?

    For one, the Brazilian fleet is still quite old. For many years until 2005, new vehicle sales have been dormant and consequently the average fleet age for passenger cars is now at roughly nine years, well above the European averages. in addition, most of the vehicles sold in the past were technologically outdated. Until a few years ago, Brazil was at least one model generation behind the global standards, selling cars with little equipment and thus lower repair potential. With the recent sales boom, the fleet is being modernized. OEMs are now launching their latest global models or even developing specific variations for the Brazilian market.

    The Brazilian vehicle aftermarket is undergoing a shift of directions: After years in which the business with parts and services was more or less dormant, now the prospects turn out to be promising

    source: sindipeas; gmA; roland Berger

    others1)

    gas stations

    work-shops/auto-centers

    dealer-ships

    2) multiple answers possible; does not add to 100%

    1) Includes oil change stations

    skepticism towArDs DeAlerships Is A ChArACterIstIC For the BrAZIlIAn AFtermArket

    up to 2 years

    3-4years

    5-6years

    7-9years

    10-14years

    15 yearsand more

    42%

    25%

    16%

    17%

    50%

    18%

    22%

    10%

    57%

    15%

    23%

    5%

    64%

    14%

    20%

    2%

    68%

    13%

    18%

    1%

    71%

    11%

    17%

    1%

    reasons not to repair in dealerships2)

    high prices

    low reliability

    Bad service

    long repair times

    Insufficient advice

    Poor aftersales service

    long waiting times

    large distance from home

    low flexibility in timing

    vehicle warranty has expired

    43%

    36%

    33%

    17%

    14%

    14%

    12%

    12%

    10%

    9%

    Preferred service provider

    A look Around the world | BrAZIl

    5

    Car age

  • 6 Automotive insights | 02.2013

    why Brazilian customers prefer independent workshopsA further important explanation for the lack of scale of the Brazilian aftermarket lies in the customer behavior for maintaining cars. Even though Brazilians are very attentive of their vehicles and quickly repair any (visible) damages, they are also extremely cost conscious. More than 50% of maintenance during the first two years of car ownership is done outside the dealerships. As soon as the warranty is over (most OEM warranty programs are limited to only one year), maintenance and repairs at dealerships drop to only 10%. instead, customers prefer to frequent one of the 75,000 smaller, independent workshops to whose owners they often have a trustful and personal relationship and where they are sure to get the "best" prices and an attentive and reliable service.

    The reason for this behavior lies in a mix of deeply routed perceptions that dealerships overcharge their customers, do not attend them well and provide poor service. in fact, OEMs have only recently started to develop better organized sales and service programs for their dealerships, to train dealer principals and mechanics, and to control parts and service prices. Most dealers still achieve less than 30% of their overall revenue from aftersales and the sale of parts. Nevertheless they are inexperienced in attracting and retaining customers.

    Nevertheless, this behavior is starting to change. As new vehicle margins for dealers come under increasing pressure, OEMs and large dealer groups start to understand the need to focus more on aftersales. As a consequence, the share of the OES channel is expected to rise from only 17% in 2010 to 24% in 2016. And there is even more room to grow for dealerships: Recently, Roland Berger developed an aftersales strategy

    AnYthing But A mAture AFtermArket: BrAZIlIAns sPend less thAn hAlF oF the money on PArts And servICes In ComPArIsIon to other CountrIes

    source: sindipeas; J.d.Power; Projetos; roland Berger

    Fleet size in million

    germany

    874

    42.1 30.7

    746

    uk

    566

    36.6

    Italy

    407

    46.5

    China

    193

    57.3

    eastern europe

    31.3

    782

    France

    288

    25.9

    Brazil

    250.0

    745

    us

    Ann

    ual a

    fter

    mar

    ket r

    even

    ues

    per v

    ehic

    le [u

    sd]

  • 7Automotive insights | 02.2013

    for a leading Brazilian dealership group resulting in a duplication of aftermarket revenues at the individual service sales and service points within three years.

    the market growth accelerates for various reasons

    This shift is happening in the light of strong overall aftermarket growth. For the years to come, the market should grow by approximately 10% per year, driven by the growth of the new vehicle fleet, better equipped and more complex vehicle models, more disposable income of the car owners, an increasing focus on (preventive) maintenance and stricter emission and vehicle safety regulations.

    in response to this growth, large global autocenter groups are arriving and workshop networks are starting to form. Several global players have entered the Brazilian market over the last years, aiming to participate in the fast growth and taking market shares from the independent small and medium-sized workshops. After a successful initial entrance, many struggle to expand further.

    Capturing the growth of the Brazilian aftermarket is not an easy task for suppliers. On the plus side, Chinese brands are only starting to arrive as the vast and developed aftermarkets in Europe or the US are much more attractive. Only the most advanced and professional Chinese iAM players have got lasting import and distribution partners. Most companies still work with changing partners willing to assume the entire risk of importing and then selling whole containers of goods

    A look Around the world | BrAZIl

    Jammed roads are ordinary in Brazil: south America's biggest country has grown into the world's fourth largest automotive market

  • 8 Automotive insights | 02.2013

    from China. in addition, margins are quite strong due to elevated aftermarket prices for the suppliers, distributors and retailers.

    On the down side, the Brazilian aftermarket is still highly fragmented and the geographic expansion poses significant challenges for both new entrants and established players. in comparison to more mature markets that are typically using a 2-Tier structure between suppliers and final customers (typically distributors and workshops), Brazil is still using a 3-Tier structure with national/regional distributors, resellers and workshops, each adding their own margin and service to the parts delivery.

    heads up: the Brazilian market has some important characteristicsA key reason for this complex structure is the vast expansion and poor infrastructure of Brazil. Bringing parts within even 24 hours at reasonable cost still poses an enormous challenge in many regions of the country,

    not even considering the really remote areas such as the Amazon. Thus national distributors often work hand in hand with regional players to ensure a national coverage of warehouses on-site. local resellers often operate a network of motorcycle delivery boys bringing the parts to the workshops that usually do not keep any stock at all.

    A consolidation of this market is expected on a short-term basis but has not yet started. The leading distributor thus currently holds below 4% market share and even the top-20 combined do not surpass 25% market share.

    With infrastructure and professionalism of the market developing, this structure becomes increasingly outdated and unnecessary. The market needs to consolidate, but no one seems to know how. Will suppliers deliver directly to the bigger autocenters and workshop chains as they are already starting to do, thus bypassing the distributors entirely? Or will the distributors consolidate, encompassing the resellers and thus position themselves as an irreplaceable partner in the distribution chain? So far, no trend is clearly visible, and market participants maintain a high degree of flexibility, preparing for either scenario.

    A look Around the world | BrAZIl

    AFtermArket DistriBution chAin in BrAzil. two ChArACterIstICs Are ConsPICuous: oems AChIeve only 20% mArket shAre, And the IAm strongly relIes on dIstrIButors

    source: sindipeas; gmA; clippings; interviews; roland Berger

    supplY

    wholesAle

    Fleets

    oems

    Final consumers

    suppliers

    oem dealershipsretailers

    Auto centersworkshops

    retAil

    repAir

    originAl equipment mArket inDepenDent AFtermArket

    17%

    xx%

    6% 24%

    15% 3% 30%

    15% 60%

    5% 16%

    9%

    10%

    Distributors

    39% 12%22%

    8% 4%

    share of aftermarket volume

  • 9Automotive insights | 02.2013

    stephan keese Partnerroland Berger strategy Consultants, so Paulo [email protected]

    martin BodewigPrincipalroland Berger strategy Consultants, so Paulo [email protected]

    rodrigo custodioProject managerroland Berger strategy Consultants, so Paulo [email protected]

    Authors

    Competition is growing: Brazil attracts players along the entire value chain

    For new market entrants, this creates a scenario of uncertainty, where capturing the growth in a profitable manner is not an easy task. Ensuring the right partners and products, implementing a cost efficient, lean and highly effective and reliable logistical structure, establishing the brand and building trust to the customers are among the key challenges for any market participant.

    For the years to come, the Brazilian aftermarket will grow significantly. This will attract many more players along the entire value and distribution chain. However, it is a complex automotive market that needs to be understood in detail and requires substantial preparation and consideration to succeed. Companies investing in Brazil have become very successful and earn good money or have lost their investments many times over.

    reADing tips Check out our collection of emags, studies and papers for automotive insiders.

    exAmples From other inDustries read more about customer service at online and telco giants.

    AuDio content listen to ralf kalmbach, head of Automotive at roland Berger.

    Best prActices Find out about the aftersales strategies of big oems.

    the rB proFiler in DetAil take a closer look at our analytics tool.

    5 reAsons to browse the Automotive Insights emag on your tablet:

  • 10 Automotive insights | 02.2013

    USAA look Around the world

    the BAttle For customer ownership

    Downtown new York symbol for "the land of opportunity": Is there an opportunity to grow in the aftermarket

    business for oems, too?

  • 11Automotive insights | 02.2013

    After years of neglect, OEMs in the US recognize the importance of the aftermarket business and try to regain market share from their independent competitors

    The US light vehicle automotive aftermarket reached a total size of USD 230 billion in 2012. Currently, 73% of the overall revenues are generated through the independent

    aftermarket channel, which is an increase of 5% within the last ten years. Because OEMs are losing market share to the independents, they and their dealers need to find new and expand existing measures to benefit from the highly lucrative parts and service business. On average a dealers service, parts and body shop operations generate 12% of sales but as much as 43% of profits, an Automotive News study revealed.

    The big problem for OEM networks in the US is customer retention. After purchasing a new car a typical US owner rarely returns to his dealer for non-warranty service, preferring to use an independent shop instead. The main reason for that is that customers believe that independent service providers are generally less costly and do not offer unneeded repair service. This poses a problem for OEMs and their dealers, as this generalization does not always hold true. The immense geography of the US is exacerbating this problem, as it is difficult for manufacturers to have a dealership close to all customers. independents, also attracted by the high profitability of the aftermarket, have filled in these geographical gaps. Another challenge for OEMs as well as independents is the ever increasing vehicle quality. This will further reduce the overall need for service and maintenance, and consequently increase competition in the aftermarket.

    in particular younger generations, which are accustomed to utilizing various electronic channels, will further increase the need for better and more convenient services solutions. For example, they are used to signing an iPad and then receiving an email

    A look Around the world | usA

    invoice. They will not tolerate waiting 15 minutes and then being asked to fill out lengthy paper forms.

    Because of these challenges and dynamics many OEMs have placed a newfound importance on making their service more convenient. However, the majority of the automotive industry is still far behind companies like Apple, Starwood or Starbucks in terms of convenience and consistency of services.

    Current initiatives by oemsBased on our perception, manufacturers in the US have understood that they need to adapt their existing aftermarket solutions to match the changing customer demand. Furthermore, they realized that they can retain their customer base by offering them an excellent customer experience. Because US customers value convenience above all else, especially when compared to other major markets like Europe or Japan, OEMs need to improve the convenience of their existing processes and aftersales formats as well as their online presence and make prudent use of telematics systems. The current initiatives can be differentiated in three fields: Process and format innovations Online presence Telematics systems and connected vehicle technologies

    how oems try to improve the overall customer experienceThese measures include all kinds of improvements to existing service related processes initiated by OEMs in cooperation with their dealer networks. Moreover, they cover innovative solutions, which were either adopted from leading service industries or are entirely new solutions designed specifically for the automotive segment. The following presents an overview of current examples by various OEMs and their dealer networks' efforts to improve the overall customer experience:

    Ford launched Quicklane, a network of over 600 quick service centers that perform oil and filter changes, tire changes and minor repair services. Quicklane locations service competitive brands as well over half of customers bring in a competitive vehicle. Dealers have reported an increase in new and used car sales since the introduction.

    nissan recently launched express lanes at 400 of its 1,100 dealerships.

  • Automotive insights | 02.2013

    OEMs like Bmw, volkswagen, toyota, nissan, chrysler or mercedes Benz offer online service scheduling through Xtime for their dealerships. Advantages are to choose from open time slots, reminders and status updates as well as online payment. The 200 Volkswagen dealerships currently using Xtime generate an average of 20 new customers a month.

    hyundai has gone one step further with its "At Your Service Campaign" for owners of its new Equus luxury model. The company decided that a luxury ownership experience should not require the customer to ever set foot inside a dealership or repair shop. A representative will come to pick up your vehicle and leave you a loaner car when service is required. Once the service is complete, your car will be returned to you. Additionally, Hyundai provides America's best warranty coverage of 10 years or 100,000 miles (about 161,000 km).

    hyundai assurance offers a "Hyundai Trade-in Value Guarantee" which guarantees (at the time of purchase) exactly how much a car (Genesis, Genesis Coupe and Equus) will be worth two, three and four years from the purchase date.

    The ever increasing electronic complexity of today's cars has prompted lexus to introduce Apple-style "Geniuses" that provide customers with free support in navigating all the vehicle technology such as the entertainment and navigation systems.

    lincoln is set to roll out its new 24/7 concierge program (integrated into its website) which among other things will give its customers a personalized portfolio, logging all customer vehicle preferences, which can be shared with the customer's preferred dealer.

    chrysler has recently (in conjunction with its dealer network) introduced 800 express lanes designed to offer quick services like 15-minute oil changes at prices in line with independent outlets. Additionally, the company has introduced the wiAdvisor system, which helps dealers and their service employees to have selected vehicle data and customer preferences instantly available.

    A lot of OEMs like chrysler, Ford and toyota have started to offer care programs and service contracts. According to a recent DMEautomotive survey only about one in four US vehicle owners currently has a prepaid or free service plan. According to the study, 56% of these consumers are likely to continue servicing at the dealership even after the expiration of these plans.

    us light vehicle AFtermArket sAles BreAkdown By ChAnnel, 2002 vs. 2012

    source: AAIA; roland Berger

    2002sales by

    channel [%]

    25%others

    tire dealers

    oem new car dealers

    general automotive repair shops

    Automotive body, paint and interior repair and maintenance

    Automotive parts & accessories stores

    7%

    10%11%

    15%

    32%

    2012sales by

    channel [%]

    28%

    7%

    11%

    27%

    16%

    11%

    totAl mArket sIZe:

    usd 180 Bn

    totAl mArket sIZe:

    usd 230 Bn

    others oem new car dealers

    tire dealers

    Automotive parts & accessories stores

    general automotive repair shops

    Automotive body, paint and interior repair and maintenance

  • 13Automotive insights | 02.2013

    These examples clearly demonstrate that OEMs in the US have realized the need to turn their focus to the aftersales market segment and not only to new car sales. However, not all customers have the same expectations or requirements regarding pricing and procedures. in order to address each client individually, manufacturers also need to have a comprehensive customer segmentation approach. This will help each OEM to further differentiate its service product portfolio. Most importantly, the knowledge about customer service patterns, their attitude towards cars, as well socio-demographical information need to be distributed to all involved aftersales employees. in this regard, Chrysler's wiAdvisor approach is a good example of how OEMs started to leverage relevant customer information.

    why manufacturers have to invest into online presence

    in 2012 online automotive parts sales hit approximately USD 3.5 billion. While this is still a small portion of the overall aftermarket, it is also one of the fastest growing segments. Additionally, over 70% of US consumers

    who need automotive parts use the internet for price comparison and location searches, even if they do not make their actual purchase online. Because of this, the web is one of the most important contact points between OEMs and their clients. A great customer experience needs to be consistent across all channels and processes where people interact with the brand. Therefore OEMs must ensure that their online presence is as user friendly and convenient as all of their other initiatives.

    For example, when customers want to schedule service or buy a part online, they are often redirected from an elegant OEM website to a less sophisticated and less convenient local dealer website. Currently, a number of OEMs, including Chrysler (Mopar), Ford, Honda and Nissan offer parts retail from their website. Once a part is selected the order is processed by the website of the closest dealer. Even though the customer is aware that this is no longer the company's website, it is still a representation of the brand. Therefore, OEMs must work very closely with their dealers to better leverage the power of their brand. One player that has done well in this regard is BMW. Most of their dealers' websites match the corporate web design very closely and provide a pleasant user experience.

    A look Around the world | usA

    green traffic lights ahead: several oems are opening the throttle to regain market share in the aftersales business

  • 14 Automotive insights | 02.2013

    "convenience is the most criticAl

    FActor"

    insights mr. gorlier, what makes the us aftermarket special compared to other major markets like germany or Japan?pietro gorlier we have one of the most competitive environments and a larger market share held by independent players compared to other key markets around the world. two main drivers have led to this environment:the first dimension is the geographic one: due to the sheer size of the us, it's very hard to have a sustainable oem service point close to every single customer. Independent competitors, serving multiple brands, have filled this space.the second driver are service demands

    that differ from other regional markets: compared to europe, us car owners travel more miles, more than 50% more in fact, and the service intervals are shorter, requiring more

    service visits.

    A look Around the world | usA

    Other manufacturers such as Mercedes, Toyota and GM do not offer parts retail service on their website, probably because they do not want to undermine the sales efforts of their dealers. The relationship between an OEM and its dealers is unique relative to other countries. Owing to US franchise laws, manufacturers must sell their vehicles through their franchised dealers and cannot retail directly. Such a situation gives dealers the ultimate control over face-to-face customer interactions.

    Therefore, OEMs must redesign their processes and platforms in a way that more easily incorporates external systems, such as their various dealers' websites. ideally, it should be possible to schedule a service at a specific dealer directly from the manufacturer's website. Moreover, the visitors should never be redirected to an external site that may not represent the brand in the best manner. Convenience and consistency are the keys to success and customer retention. Therefore, the customer must be presented with a single and consistent image and experience of the brand that does not change when moving from one channel to another.

    telematics systems and connected vehicle technology

    A key lever for manufacturers and their dealer networks to increase customer retention can be seen in the increasing integration of telematics systems in new vehicles. The North American telematics market for OEM embedded systems increased from roughly 800,000 units in 2000 to approximately

    Pietro Gorlier, President & CEO of the Chrysler parts and service brand Mopar,

    talks about future aftersales challenges and characteristics of the US market

  • 15Automotive insights | 02.2013

    mopar is the service, parts and customer care brand within Chrysler group llC and Fiat spA. It was founded in 1937. the name is a portmanteau word of "motor" and "parts". headquartered in Auburn hills, michigan, the brand employs more than 6,000 people in 130 countries. mopar ships more than 350,000 order lines per day and operates 50 parts distribution centers. It supports different car brands like Chrysler, dodge, Fiat or Alfa romeo.

    mr. pietro gorlier is the President & Ceo of mopar since 2009. he joined the Chrysler group from Fiat group Automobiles and Cnh global. At Fiat he served as head of customer service. gorlier entered into the Fiat group in 1989 as a market analyst and held various positions in logistics, aftersales, and customer care. the Italian-born manager holds a master of economics from the university of turin.

    this larger potential has created favorable conditions for the development of a fierce competition to conquer these customers.

    what are, in your opinion, the key challenges from an oem perspective within the us aftermarket?the greatest challenge is customer retention. with oems, you have a clear, sharp decline in customer retention after the first two or three years of the life of a car. you quickly move from a retention rate of approximately 60-70% in the beginning to below 50%. when the car reaches five years or older, the retention rate falls to 20-30%. Another challenge is the perception customers have of dealers: they see them as inconvenient and expensive compared to independent outlets. this is more perception than reality, but this is an issue. last but not least, as vehicle quality improves and service intervals become longer, cars need less service. this contraction of business potential in a market overcrowded of players is leading to even more competition for aftersales business.

    what is Chrysler/mopar doing to capture even more aftermarket value?the crisis of 2008 and 2009 was a strong wake-up call for all the dealers when they suddenly found out that they needed to cover the lack of volume in new-car sales with parts and service profits. to maximize our business, we are working closely with our dealer network on a daily basis to create an excellent customer experience in order to improve customer retention and attract new customers.

    Could you specify that, please? we introduced a number of initiatives to improve the overall customer experience: For quick, convenient maintenance, we launched 800 mopar express lane facilities at our dealers, which is 35% of our network. we also launched saturday service hours in more than 80% of our dealers, expanded our daily customer call-center hours and introduced industry-first sunday call-center hours. to generate return business, we significantly improved our service-contract penetration. last year, we sold a record 1.4 million service contracts. this is significant because each contract generates an average of three future visits.

    you already support several brands any efforts to expand this range?to attract owners of competitive makes into our service lanes, we partnered with

    magneti marelli, creating a portfolio of 30 product lines and more than 3,000 part numbers for all makes.

    how to you react to the ever-growing demand for online services?we know that 70% of all parts, tire, service and accessory searches are online, so we enhanced our mopar website. now customers may conveniently browse our online catalogs of proven, quality-tested parts and accessories and order them on the web. we offer dealers a search program that allows us to present them as a top option to consumers who are using a search engine or social network, with the opportunity to download coupons, get driving directions and call the dealer. dealers may also send coupons to mobile phones and instantly collect customer feedback.Apart from that, we introduced numerous industry-first features including vehicle-information apps, electronic owner manuals, wiFi, wireless charging for smartphones, and an electronic vehicle tracking system that sends owners a text when their vehicle is being driven too fast or too far based on set parameters.

    do you use mobile or web-based technologies for customer care in your workshops, too?we do: For a quick, all-encompassing check-in procedure in our service lanes, we introduced the industry-first wiAdvisor technology, a system on a tablet computer that provides service representatives with an instant 360-degree view of a customer and his or her car the minute they pull into our service lane. All data, including customer preferences and relevant vehicle information, is immediately at the fingertips of our service personnel. the experience is similar to that of checking into a luxury hotel.

    how does Fiat's/Chrysler's single aftersales brand approach compare to other oems? what are advantages and disadvantages?when you start sharing platforms, components, processes, systems, and diagnostic tools across all of your brands, you realize numerous benefits. having only one organization that provides service and support to every dealer and every customer for all brands is a competitive advantage in standardization of process and parts and time to market. the mopar umbrella gives dealers a single point of contact for all of our brands. And don't forget that the mopar brand has a proud 76-year heritage, a legacy that also gives us a competitive advantage.

    Final topic, mr. gorlier: what are your prospects for the aftersales business? I think it's important to keep in mind how customer demographics are changing and how we will effectively change to meet the expectations of and delight tomorrow's customers. new generations will be even more demanding because they have been exposed to better service and retail dynamics. I think this is one area where the automotive market still lags behind other retail industries. think about the typical teenager who is used to shopping online. he or she has never dealt with paper transactions and does everything electronically. why should they have to deal with a cashier when they are used to signing their names on a tablet and getting an invoice e-mailed to them? similarly, customers expect to conveniently book service online or receive online updates on the progress of a repair.

    It's all about convenience?Absolutely: In today's day and age, convenience is the most critical factor. only those oems, dealers, and independents who can offer the highest level of convenience seamlessly integrated into their overall customer experience will be successful in winning a share of the automotive aftermarket. And, as an added benefit, if you provide a customer with a great experience, they will be much more likely to consider you when purchasing their next new vehicle.

  • 16 Automotive insights | 02.2013

    4 million units in 2012. it is the largest market in the world, according to an iHS study.

    With a growing penetration of telematics systems in the car fleet, OEMs can establish a direct communication channel to vehicle owners and introduce new proactive services, which create a competitive advantage against the independent aftermarket. For instance, telematics can automatically notify the manufacturer to send a message directly to a car or smartphone, reminding the owners that their vehicle is due for an oil change and recommend the preferred dealer and special products or service packages at the same time. OEMs can provide wireless software updates that continuously create an added value for the customer during the complete car ownership cycle strengthening the bond with the brand. in the future, telematics will also be the basis for predictive maintenance, where the driver is automatically warned ahead of a severe failure. This service can include recommendations how to mitigate the problem with the preferred dealership or in urgent

    +0.6%

    +3.5%

    historicAl Development oF the us lIght vehICle AFtermArket [usd BIllIon]

    source: AAIA; roland Berger

    210 215

    230

    180

    2002 2007 2010 2012

    32%

    oem new car dealersIndependent aftermarket players

    68%

    71%73%

    73%

    29%27%

    27%

    CAgr +2.6%

    '02-'12 CAgr [%]

    cases the dealer close by, which provides a unique opportunity to avoid a negative product and brand experience.

    A good example for the increased usage of telematics systems in the US is the Hyundai system "Blue link". An integrated multimedia navigation system plus a connected smartphone are its base. Service related functions include vehicle diagnostic trouble code notification, maintenance alerts, service scheduling, and live owner support. Over 300,000 customers subscribed to the service in the US. Ford's SYNC package also offers service related information to vehicle owners. The vehicle health report as an example provides data and suggests actions for displayed warning indicators and scheduled or subserviced maintenance. The system was already introduced in late 2007.

    how is the independent aftermarket responding?

    The independent competition will not easily give up its current market share of the US aftermarket. They are responding to OEM initiatives with constant improvements of their existing processes and solutions.

    The major independent service and retail chain, Pep Boys, recently launched a pilot program in Tampa Florida. The store has a completely new design where traditional aisles are replaced with "Product Neighborhoods" to make finding products more convenient. The store also features a general aesthetic makeover and customer conveniences such as an upgraded waiting lounge with free WiFi and other amenities. The entire design is focused around convenience and a more customer centric approach.

    Autozone, another major independent aftermarket retail chain recently partnered with Osram Sylvania to provide store personnel and customers an easy to use touch screen kiosk at the shelf to assist with part selection. Customers in selected Autozone stores will find it much easier to select the right headlights for their cars and can even watch videos detailing how to perform the installation, using iPads with special software (Sylvania's custom headlight app).

    These two examples of major players demonstrate that independents have also realized that a convenient and pleasant experience is what drives customers to frequent their stores. Moreover, the big independent aftermarket service chains are highly professional businesses, which already have well defined best

  • 17Automotive insights | 02.2013

    practices regarding customer experience. Pep Boys, as an example, opens its stores from Monday to Sunday, appointments can be made online, and the company uses apps as a communication platform. Furthermore, it has already established a reward membership program similar to other major hotel chains. Program members are eligible for special treatments like free tire repairs or battery checks and earn points with every purchase or service, which can be used for future purchases.

    manufacturers still have a long way to go

    The US aftermarket has lagged behind other industries in terms of customer convenience and experience. However OEMs, who neglected the aftersales side, have shifted their

    THE US AFTERMARKET iN NUMBERS

    250m light vehicle car fleet (2012)

    11years Average light vehicle age (2012)

    146,000 number of independent service points (excluding gasoline stations; 2010)

    4.0m number of employees (2011)

    31,400 number of light vehicle dealers (including franchises; 2012)

    source: AAIA; Automotive news; experian Automotive; J.d. Power; roland Berger

    A look Around the world | usA

    Antonio BenecchiPartnerroland Berger strategy Consultants, Chicago [email protected]

    Danny muellersenior Consultantroland Berger strategy Consultants, Chicago [email protected]

    Alexander BaumgartnerJunior Consultantroland Berger strategy Consultants, Chicago [email protected]

    Authors

    marc winterhoffPartnerroland Berger strategy Consultants, detroit [email protected]

    focus back to this highly profitable business over the last few years. They realized its importance in boosting their customer retention and have initiated programs to improve the aftersales experience. improved online presence and the forethought to leverage all benefits offered by telematics systems are further measures for OEMs.

    However, OEMs still have a long way to go, particularly given the strong competition of independent service companies. They also need to find the right balance when working together with their dealers by providing them innovative solutions and ideas, without influencing their operations too much. We believe that in the end only those OEMs that work closely with their dealers to offer a pleasant and convenient experience that is consistently and seamlessly integrated into all different channels will be successful.

  • 18 Automotive insights | 02.2013

    The CEE aftermarkets have experienced dynamic growth over the past few years and are also likely to grow faster than the established European countries in the

    future. The maturity of spare part markets is generally improving as the countries approach Western European levels, albeit with different dynamics. As the region is very diverse, and significant differences exist between the countries, the key question is where the particular

    CEE countries stand in terms of market maturity, and which ones will benefit from the future growth? We can already say that the maturity of major CEE markets is still far behind that of developed Western European countries, and that the "size matters" principle has proven to be a valid profitability driver along with the business model and relative market share, for instance. Some CEE markets have already entered the consolidation phase for this reason.

    A look Around the world

    CEE

    size mAtters

    one region, many different ways. the aftersales business in Cee

    is as divers as the countries

    Survey on the maturity of the aftermarket in CEE countries and major trends shaping the industry

  • 19Automotive insights | 02.2013

    lean and growing marketsThe CEE aftermarket has been virtually rebuilt from scratch over the last 20 years and is therefore characterized by a lean and efficient structure. There is a small number of leading independent distributors in each of the countries, typically supplying garages directly via a dense network of branches. Wholesalers and regional distributors play a lesser role than in Western Europe, as they focus mainly on fringe regions and small cities where it is not necessarily economical for distributors to operate their own branches.

    Two major business models have crystallized in the market own branches and franchise branch operations. Most Western European players, such as Rhiag, Stahlgruber or Trost, approach the market via their own branches nowadays; they focus on maximizing value by controlling the network and proximity to clients. However, the major Polish players, such as inter Cars, use mainly the franchise model to achieve fast market expansion at limited costs.

    The combined market size of the CEE aftermarkets reached EUR 8 billion in 2011, driven mainly by regional leaders such as Poland (55%), the Czech Republic (17%) and Romania (12%). As car parc age is higher on average than in Western Europe (ranging from 12 years in Slovakia to 14 years in the Czech Republic and Poland), the independent aftermarket's share of the total is very significant, reaching as much as 73%. The markets have achieved strong average growth of 4.7% per annum in the past (2005 to 2012), driven by increases in disposable income and a growing car parc. They are also expected to maintain above-average annual growth of 4.2% between 2012 and 2016.

    Cee: A diverse region far from western levelsMarket maturity in CEE varies widely by country, so we have created an aftermarket maturity index to assess their respective stages of development. The index combines a number of criteria across three major stakeholder groups: distributors (presence of international players, partner program quality, for instance), garages (with criteria like garage size), and end customers (average car age, spend per car, for example). Thus it provides a comprehensive assessment of each country.

    in a nutshell, CEE still significantly lags behind the most advanced markets such as Germany or Switzerland

    (see first figure next page). The differences can be found across all stakeholder groups.

    On average, a customer in Germany spends up to EUR 500 per vehicle per annum. This figure is just EUR 270 (54% of the German amount) in the Czech Republic and as low as EUR 230 (46%) in Poland. The average age of a German car is roughly 8 years, and the car parc renovation rate is 7.4% per annum. in the Czech Republic or Poland in contrast, the average age is about 14 years, and the renovation rate stands at 3.6% (Czech Republic) or 1.5% (Poland, 2011). These differences are crucial, as past surveys have shown that car owners significantly reduce their investment in vehicles that are ten years old or older (for further insights into the customer behavior check out our cover story on page 24).

    Not surprisingly, brand preferences differ from country to country: the Poles like to drive Fiats, Czechs and Slovaks favor koda, Hungarians prefer Suzukis, and Romanians like Dacias based on local footprint of the brands.

    Distributor backgrounds differ greatly among the countries. in some markets there is a strong presence of established players from Western Europe. For example, the Czech Republic and Slovakia have five brands among the top ten players owned by major international distributors, including Rhiag, Stahlgruber and Trost. On the other hand, Romania and Hungary are dominated by local players with only a minor presence on other markets and with limited access to foreign capital and know-how.

    The Polish market is exceptional, as it is dominated by the national champion inter Cars, a company that has also managed to expand significantly into other CEE countries. At the same time, Poland is characterized by very low margins compared to the rest of CEE. This is due to customers' high level of cost consciousness and the proliferation of the franchise model, which focuses on growth rather than profitability.

    Partner programs are already popular in some CEE markets, such as the Czech Republic, Slovakia or Poland, and a number of sophisticated programs have developed (Partner Elit by the leading Czech distributor, for instance). However, the penetration of affiliated workshops is still low in Hungary and Romania, and the share of affiliated garages has room to grow across all CEE markets, compared to more developed countries (below 30% contrary to over 60% in italy and 50% in Germany).

    Furthermore, the average size of garages (measured as car parc per garage) is smaller in CEE, where small

    A look Around the world | Cee

  • 20 Automotive insights | 02.2013

    overview ABout keY AFtermArket metrics In Cee And seleCted western euroPeAn CountrIes

    source: roland Berger

    our "AFtermArket mAturitY inDex" vIsuAlIZes the stAges oF develoPment oF dIFFerent mArkets

    source: roland Berger

    maturity index

    Follower Fast follower Advanced most advancedlaggard

    romAniAhungArY

    slovAkiApolAnD

    itAlY

    germAnYswitzerlAnD

    czech repuBlic

    customers spend per car

    Age of fleet

    Fleet renovation

    Car penetration

    market consolidation

    direct access to garages

    Presence of internat. players

    Partner program quality

    Involvement in buying groups

    Average garage size

    Presence of specialized chains

    czech

    repu

    Blic

    slovAk

    iA

    polAnD

    hung

    ArY

    romA

    niA

    itAlY

    switz

    erlAnD

    germA

    nY

    DistriButors

    gArAges

    totAl

    Positive/high negative/low

  • 21Automotive insights | 02.2013

    A look Around the world | Cee

    workshops with limited equipment and skills are still very common. The average figure is below 1,500 vehicles in most CEE markets, while the developed countries reach about 2,000.

    However, the lower maturity level of many CEE countries means that the markets still present a significant investment opportunity. They are likely to experience above-average growth driven by an expanding car parc, spend per car approaching European levels, and the declining average age of vehicles driven.

    several global trends affect the Cee markets, tooA number of global trends are shaping the CEE aftermarkets. The crisis hit carmakers with a local footprint, and their regional sales and aftermarket business for new vehicles declined. Since then, OEMs have been trying to penetrate the independent aftermarket segment of older vehicles (more than three years) to generate more business and improve profitability. The main levers used focus on increasing customer loyalty and satisfaction and improving cost competitiveness by means of focused marketing campaigns.

    At the same time, major independent distributors are striving to set up stronger links to leasing, fleet management and insurance companies. Thus, they gain a greater share of the young cars segment (up to three years). Relations with insurance companies (which could save up to 20% of the costs by using iAM garages) are not yet well established mainly due to substandard service levels provided by the iAM workshops. However, leasing companies and fleet managers have increasingly been testing the iAM segment over the last three years in order to optimize their cost base.

    Overall, despite the fact that OEMs have significant financial clout and their workshops have a strong quality and technology base, the iAM segment is expected to hold, or even slightly improve its position. its remaining cost competitiveness and the improving service level contribute to this advancement.

    The development of online business, especially B2C, was accelerated by the crisis in CEE, as end customers became increasingly cost-conscious. Many buy parts online nowadays and then ask a garage to fit them. Distributor-supported web platforms are also beginning to appear. One example is motointegrator.pl, run by the leading Polish distributor inter Cars. it enables the

    end customer to purchase the necessary spare parts and at the same time to book a slot at an inter Cars partner garage to have them fitted. Nevertheless, the risk to established players from the online segment is not considered to be very high at the moment.

    Exclusivity, which was very common in CEE in the past, has gradually been abandoned, as distributors have become increasingly reluctant to commit themselves to sales targets and instead are choosing to offer their clients a wider range of products. At the same time, suppliers have opted for maximum possible access to the market in order to maintain their sales levels.

    Consolidation underwayThe markets in a number of CEE countries are in turmoil, characterized by ongoing consolidation, with some players strengthening their positions and others leaving the battleground.

    Especially the most developed markets, such as the Czech Republic and Slovakia, are on the move, with major European players consolidating the market (though some are still finding it hard to get into in the black). Trost initiated the consolidation wave with its Meteor takeover in 2008. Rhiag added Auto Kelly to its portfolio, next to Elit, in 2010 establishing a clear number-one player in the Czech Republic and Slovakia.

    Stahlgruber acquired Autobenex in 2012 as a second brand next to Autocora to strengthen its position in the Czech Republic. At the same time, a number of players, especially from those ranked fifth to fifteenth, were forced to leave the market, as their position and growth prospects were no longer sustainable.

    There are also some local growth stories. inter Cars has managed to almost double in size to become nearly three times larger than its most important competitor in Poland. it has also expanded into neighboring countries, where it is now present in ten neighboring markets. Since 2008, inter Cars has opened 83 new branches and entered four markets, though Poland still accounts for more than 75% of its business.

    The strength of the top ten leading players has been growing continually over the last few years at the expense of both other national players and local wholesalers. For example, the top ten distributors in the Czech Republic have increased their market share by 15% since 2007. in Slovakia, the top ten even have grabbed 17%.

    As the CEE markets are rather small compared to Germany, for example, they are already characterized

  • 22 Automotive insights | 02.2013

    by a lower degree of fragmentation, with the top five players holding over 40% of all the assessed markets. This share is likely to grow further as the countries mature and the major players shore up their positions.

    size matters!Spare parts distribution is one of the most competitive businesses, and only the largest players are able to achieve positive profitability (see the infographics below). One reason is that access to capital and know-how becomes critical (especially on small markets) as complexity increases driven by the growing importance of electronics and a higher variety of models. Thus, a growing number of stock-keeping units have to be available, and greater demands are made on the services and intelligence of a garage.

    Secondly, the largest players are typically those with the highest relative market share (inter Cars is almost three times larger than Fota in Poland, and Rhiag is four times the size of Stahlgruber in the Czech Republic). This gives them significant advantages on a number of criteria: only the largest players are strong enough to negotiate the best deals with suppliers, achieve economies of scale in logistics, have sufficient capacity and strength to develop an affiliation program

    and private label brand, and provide their clients with the required service level and tools.

    Exceptions include specialized players such as ACi in the Czech Republic (crash specialists), which can achieve high profitability with a specific USP (unique selling proposition). Of course, other key drivers like the business model can also significantly drive profitability.

    As a consequence, buying groups, both global and local, have significantly gained in importance. Global players, such as ATR or Temot, increased their joint revenue from EUR 7 billion to EUR 12 billion between 2007 and 2011. This rise is due to their attraction for distributors, which find them an efficient tool for increasing their negotiating power vis--vis suppliers. Similarly, a number of consortia were set up by local wholesalers (such as Nas Service Group in the Czech Republic, founded in 2011) to leverage their combined buying power and improve their quality of service.

    how to generate synergies?

    Recent cases have indicated that synergies are hard to realize in the aftermarket distribution business, and are only to be found if two players merge in adjacent or the same markets.

    A look Around the world | Cee

    20

    eBit margin [%]

    10 15

    size mAtters: the BIgger A PlAyer, the hIgher Its ChAnCe to AChIeve ProFItABIlIty, As shown By the mAtrIx oF mAJor Cee IndePendent dIstrIButors

    source: roland Berger

    -25

    0

    20

    50

    100

    150

    450

    sales [eur m]

    -20 -15 -10 -5 0 5

    major Cee independent distributors

  • 23Automotive insights | 02.2013

    A look Around the world . Cee

    Consolidators can count on synergies from sharing investment in the diagnostic tools provided to garages, sharing overhead functions, streamlining product portfolios, or optimizing transportation and warehousing costs. A number of recent cases tapped synergies by accessing a private label or affiliation program developed by a particular distributor.

    Finally, let's not forget synergies from improved negotiating power vis--vis suppliers. However, once the buying groups are already established as a strong negotiating platform in this respect, benefits of scale achieved via consolidation are diminished.

    Significant care must be taken to implement synergy levers, even if they relate to the background functions there must be no negative impact on customer satisfaction. The risk of losing market share is high, as competitors are ready to take advantage of every small mistake.

    To conclude, size matters, since only the large players have sufficient resources to succeed in the highly competitive but (in terms of growth prospects) still appealing markets with a number of regional specifics. Both consolidation and organic growth seem to be valid ways to tap the region's potential. However, the optimal size should be reached with a wise and well-thought-out approach. Otherwise there is a considerable risk that a step forward will turn out to be a jump back.

    roland zsilinszkyPrincipalroland Berger strategy Consultants, Prague [email protected]

    Jan sklenar senior Consultantroland Berger strategy Consultants, Prague [email protected]

    Jaroslav hrabovskyConsultantroland Berger strategy Consultants, Prague [email protected]

    Authors

    Buzzy future: the Cee markets are on the move and likely to experience above-average growth in the next few years

  • 24 Automotive insights | 02.2013

    Cover story

    Strategy

    The car industry has entered a fierce but hitherto largely unnoticed race to win the maintenance, repair and parts business. Bosch, the world's biggest automotive

    supplier, took over US shop equipment provider SPX Service Solutions for more than USD 1 billion, while competitor Continental laid its hands on British diagnostics specialist Omitec, and PV Automotive bought pitstop, the German repair shop chain.

    The aftersales market is a safe haven with strong margins for suppliers and independent repair shop

    chains, and also the OEMs. Manufacturers already generate 75 to 80% of their profits from aftersales products and services although they account for no more than 20% of sales and the profit share is rising. Big corporations like VW and BMW long ago included "aftersales" in the official title of their board members in charge of the area.

    Why is aftersales becoming so important? it's because the rules of the automotive game are undergoing a fundamental change. Current trends will shake up the industry between now and 2025: Supply and demand are increasingly shifting to Asia, competition along with

    customizAtion the keY to success in AFtersAles

  • 25Automotive insights | 02.2013

    Many OEMs are still neglecting the aftermarket. But the repair and service business can be a major profit driver, especially in times of thin margins. Our new study says how to get it right

    goods and services they really want. This must be clear from their approach to communication and product portfolio design. Micro-marketing with a service offering tailored to each individual customer would be the ideal solution.

    The extreme complexity in today's repair shops, however, rules that out. The task at hand is to identify the individual target groups and put together suitable and profitable service offers. The first step for every aftersales player therefore is a detailed product, service and customer segmentation.

    consolidation pressure are intensifying, and the increasing demand for well-affordable vehicles is giving rise to an entirely new segment.

    While alternative new powertrains will even speed up the pace of change, young urban consumers are challenging the very concept of car ownership, a trend we call demotorization. They call for new mobility services such as carsharing and carpooling, which are already experiencing rapid growth.

    To survive in the market, aftersales players must carefully listen to their customers and provide the

    who finds the key to success? the fight for the customer is heating up

    in the automotive aftermarkets

  • 26 Automotive insights | 02.2013

    Aftersales is the most important profit driver

    The aftersales market is huge but difficult to grasp. in 2011, sales in Germany alone were a whopping EUR 38 billion. The players range from OEMs and OES-players to independent parts suppliers, wholesalers, retailers, repair shop chains and independent repair shops. What's more, current trends allow players from other industries to enter the market with innovative business ideas. Just think of the information & communication technology (iCT) companies that will provide all the internet and cloud services that are becoming standard in cars. The interactions among the individual players are very complex, however. This lack of transparency allows the providers to charge nice markups without anybody noticing, but it also leads to uncertainty among customers.

    New car registrations in Germany are leading to moderate aftersales growth even in times of crisis. in 2009, Germany's cash-for-clunkers scheme led to a peak

    - 4.0

    - 3.5

    - 3.0

    - 2.5

    - 2.0

    - 1.5

    - 1.0

    - 0.5

    - 0.0

    65 -

    60 -

    55 -

    50 -

    45 -

    40 -

    35 -

    30 -

    25 -

    20 -

    15 -

    10 -

    5 -

    0 -

    the slight But steADY growth In the numBer oF CArs on the roAd And oF new regIstrAtIons underlInes the ImPortAnCe oF AFtersAles

    source: datamonitor; roland Berger

    cars on the road in germany [vehicles m]

    new registrations in germany [vehicles m]

    33%

    24%

    20%

    22%

    41.7

    2009 2010

    41.8

    2011

    42.1

    2012

    42.8

    2013e

    43.4

    2014e

    44.0

    2015e

    44.4

    new registrations

    Age groups (in years)

    0-34-67-10>10

    3.8

    2.93.1

    3.2 3.33.4 3.5

    33% 32% 32% 31% 31% 30%

    24% 25% 26% 26% 25% 28%

    20% 20% 22% 22% 22% 20%

    23% 23% 22% 24%22% 22%

    CAgr of cars on the road +1.0%

    Cover story | strAtegy

    in new car registrations. After a dip, the figures have been on the rise again since 2010, and this trend should continue although the 2009 record of 3.8 million newly registered cars will not be achieved again in the foreseeable future.

    Along with the number of new registrations, the number of cars on the road is also continuing to rise in Germany. The figure today is 42 million, set to rise to 44 million by 2015.

    Overall, Germans register more new cars than they scrap, export or no longer use. This drives up average car age. in 2003, the average German car was 7.4 years old, in 2012 the figure was up to 8.5 years according to Germany's Motor Vehicle Authority. in particular, the share of cars aged between seven and ten years is on the rise.

    Older cars need more servicing, which is speeding up aftersales growth. With 1.2% anticipated annual sales growth for all players by 2016, it will continue to be a source of stable income. Spare parts and accessories account for the lion's share of that business, with over 30% and 20% respectively.

  • 27Automotive insights | 02.2013

    45 -

    40 -

    35 -

    30 -

    25 -

    20 -

    15 -

    10 -

    5 -

    0 -

    repair shops in germany ['000]

    2015e2005

    41.7

    21.6

    20.1

    2006

    40.2

    20.4

    19.8

    2007

    39.8

    20.1

    19.7

    2008

    39.1

    20.2

    18.9

    2009

    38.3

    20.1

    18.3

    2010

    38.1

    20.0

    18.1

    2011

    38.0

    20.4

    17.6

    2012

    37.7

    20.3

    17.4

    33.5

    18.5

    15.0

    consoliDAtion on All sAles levels In retAIl, IndePendent PlAyers Are gAInIng mArket shAre

    source: Zdk; press research; roland Berger

    Authorized repair shops

    share of independent repair shops

    Independent repair shops

    CAgr -2.2%

    52% 51% 51% 52% 52% 52% 54% 54% 55%

    the four most important aftermarket trends

    Some developments, however, give cause for concern. Not all players stand to profit to the same extent. Some may even have to tolerate painful cuts in their sales and profits.

    Four market changes stand out as they have a direct impact on the customer interface: 1. stronger consolidationThe aftersales business is characterized by repair shop insolvencies, mergers and acquisitions the consolidation trend has been tangible for quite some years now. in retail, independent repair shops have recently been gaining market share.

    Of course, we also need to consider the fact that new cars need fewer repairs during their lifecycle. less mileage and longer-lasting parts have continuously pushed down the amount of service required (from 0.98 annual service appointments in 2005 to 0.9 today).

    By 2025, the amount of workshop labor hours is expected to drop by 20 to 25%. Consolidation will continue in the entire sector from OEM and OES to parts wholesalers and repair shops. This will shift more power to specific players, while others will have to struggle for survival.

    The positive effect of consolidation is that the surviving repair shops will ultimately enjoy better capacity utilization.

    2. new players & business modelsPlayers from other industries and intermediaries are using innovative business models to gain a foothold in the aftersales market and occupy the interface with customers by offering new services. Unlike in other industries, this makes the situation less clear for the customer.

    insurance companies were the first to make a move. For quite a few years now, they have been using alliances to channel customers into selected (authorized and independent) repair shops. This channeling process already works very smoothly for accident and glass repair claims. The next logical step would be to transfer this approach to the service realm.

    Selling spare parts over the counter, with no repairs, is becoming an increasingly important business model. For authorized dealers, trade with other repair shops and end customers has become a pillar of their business, potentially accounting for more than 30% of their total sales if well organized and managed.

    White label products are also gaining importance in the aftersales market. They appeal to price-sensitive customers with older cars both in the traditional spare parts and service business. More and more new players are entering this segment, joining the ranks of the well- known guaranty and insurance providers that discovered this niche a long time ago. For the customer, it is becoming harder to stay on top of this diverse range of offerings. But white labels definitely offer clear cost benefits.

    3. Disruptive technologies and mobility concepts Established and new players can also use new technologies to tap into innovative revenue sources. linking up cars with the internet ("infomobility") for car-to-infrastructure communication and iCT certainly offer enormous potential. For classic automotive services and products, the web has long since become a sales channel. At the moment, for instance, specialized online repair shops are achieving breakthroughs with their own online portals.

  • 28 Automotive insights | 02.2013

    Among the new mobility concepts, fleet management and carsharing have emerged as the most important topics. in 2012, about 700,000 Europeans were sharing some 21,000 cars, and the figure is expected to hit 15 million people and 240,000 cars by 2020.

    inde-pendent providers

    severAl oems hAve AlreAdy entered the CArshArIng BusIness wIth own BrAnds. Further PlAyers Are exAmInIng mArket entry oPtIons

    source: Bundesverband Carsharing e.v.; university of California; Frost & sullivan; roland Berger

    top players by company type (selection)

    rental compa-nies

    oems

    Fleet management is already having a major impact on the aftersales business. With just over a million newly registered fleet and rental cars, business customers already account for about a third of annual demand in Germany.

    This structural change means that the proportion of private customers that have their cars serviced will fall. Framework agreements with large customers

    Cover story | strAtegy

    such as carsharing providers, on the other hand, will multiply. Aftersales players will therefore have to tailor their offerings even more precisely to the needs of the remaining private car users.

    0.1 0.2 0.30.7

    4.0

    15.0

    cArshAring Is A resPonse to the new demAnd For moBIlIty And Is seeIng ContInuous growth

    source: Bundesverband Carsharing e.v.; university of California; Frost & sullivan; roland Berger

    carsharing users in million, 2006-2020

    2006 2012 2020

    germany

    europe

    The data required for customized offers is continuously improving. in addition to vehicle data, aftersales players have access to an increasing wealth of personal information. More and more customers are willing to reveal information about themselves if this ensures them individual service.

    in other areas, this phenomenon is nothing new. Amazon, for instance, has shopping suggestions for registered users based on their order history. This could help repair shops put together individual offers. Basic services such as reminders of the next scheduled service appointment or mileage-based maintenance suggestions should become standard.

    4. service must be an individual experienceSo far, none of the big OEMs has customized its aftersales approach. This is surprising as selling new cars is becoming ever more sophisticated so as to reach more specific target groups. Customers tend to project this positive experience onto aftersales. Providers that want to establish long-term relationships, and want

  • 29Automotive insights | 02.2013

    customers to buy the same brand the next time, must work for this loyalty and meet customer requirements throughout the entire car lifecycle.

    And here is where OEMs have the most catching up to do. At the moment, hardly any OEMs manage to retain their customers beyond the first four years of buying a new car. This means that they are missing out on a large chunk of the high-margin repair business. These lucrative customers are deserting OEMs in favor of independent repair shops and shop chains. More than 60% of the people who own cars that are older than eight years do not use OEM-authorized repair shops any more. The figure is 2 to 3% for cars that haven't celebrated their second birthdays yet.

    if you buy a premium car for more than EUR 100,000, you are probably going to get the same service as the owner of a EUR 15,000 low-end car. This is unbelievable, given that customers can switch providers at little or no cost and that services offered are more or less the same everywhere. Customer touchpoints in the aftersales business offer particularly valuable opportunities to spot individual needs, meet them and thus boost both customer satisfaction and profits.

    100 -

    80 -

    60 -

    40 -

    20 -

    0 -

    share [%]

    8 years

    where repAir/mAintenAnce work Is done CAtegorIZed By vehICle Age

    source: dAt-report 2013

    Independent repair shops/chainsAuthorized repair shops

    do-it-yourself

    the battle for customers has kicked into high gear

    At the same time, more and more providers are competing in aftersales and directly at the customer interface. These providers are giving authorized repair shops and other formats in particular a constant struggle on the maintenance and repair market. Repair shop chains in particular have continuously developed over the past few years. They have raised their profiles primarily through aggressive expansion of their branch networks and large-scale ad campaigns, which have helped position them as broad-coverage players offering better value for the money.

    The development over the past five years can be split into two phases. in the first, multiple new repair shops and repair shop chains entered the market and have taken market share from OEMs on a grand scale. in response, the OEMs created initiatives designed to claim back their piece of the profitable aftersales market (flat rate contracts, additional parts lines, counter service concepts). They were able to halt the erosion of their market share for a while.

    showDown on the mAintenAnce AnD repAir mArket: oem And IndePendent rePAIr shoP FormAts BAttle It out

    source: dAt-report 2013; roland Berger

    Authorized repair shop other repair shop do-it-yourself

    phAse i phAse ii phAse iiirepair shop chains take over a major share of the aftersales market

    oems launch initiatives and win back some market share

    the development in Phase III is still unclear: those that best address customer needs will establish themselves on the market

    60 -

    50 -

    40 -

    30 -

    20 -

    10 -

    0 -

    market share [%]

    2007 2009 2011 2013 2015

    -4.4% +2.8%

    +13.4%

    0.0%

  • stAnd out to survIve Who will win the next round? The jury is still out. But the winner will definitely be the player that best meets the needs of individual customer segments with a differentiated range of products and services. in the future, standing out from the competition won't just be advisable, but crucial to survival.

    Clearly dividing customers into various segments offers similar advantages as micro-marketing. Players can assemble service packages tailored to the values and needs of each segment so that the customer experiences the maximum of individual attention.

    To do this, aftersales players first need a much better understanding of who their customers are and what they need. We at Roland Berger Strategy Consultants tested this segmenting process on the German market with the "RB Profiler" tool. Using 18 values, the RB Profiler methodology is designed to measure, visualize and analyze the values and needs of individuals and groups. Thus, we shed light on customer and market values plus further sociodemographic criteria and usage behaviors. We also identified the target groups that promise companies the greatest strategic and commercial success.

    Together with market researcher GfK, we surveyed over 1,500 aftersales customers in Germany. Based on their responses, we were able to segment them into six meaningful brand- and values-specific groups. Key differences emerged, not just in service preferences, but also in demographics, values and service behavior in general:

    1. low-involved Traditionalists2. Service-focused Rationalists3. High-demanding Enthusiasts4. Status-oriented Youngsters5. Price-focused Emotionalists6. Cost-oriented Minimalists

    Naturally, segmenting by brand or repair shop chain would result in even more precise groupings. But even this analysis reveals differences: for example, three of the six segments show a strong preference for authorized repair shops and an above-average tendency to request original parts for maintenance and repairs.

    Cover story | strAtegy

    consumer proFile exAmple John smIth, 25 yeArs old, mAle, sIngle, low-level InCome, AverAge eduCAtIon, emPloyed Full-tIme

    source: roland Berger

    interpretation Mr. Smith is a progressive and hedonistic person He finds new, innovative technologies very exciting,

    is status-oriented and referring to the criteria in our consumer profile into "thrill & fun"

    Money is definitely an issue He is relatively cost-conscious

    Ethical and traditional values have no major meaning for him He is comparatively less concerned about quality or service, or about society, the environment or his own health

    value of comparatively less importance

    value of comparatively more importance

    e

    r

    - +

    Female male recidence big city recidence rural areaAvg. age [years]xx

    DemogrAphics

    emotional values

    rational values

    minimalist values

    maximalist values

    e

    r

    -

    +

    30

  • there Are sIx AFtersAles servICe segments In germAny

    xx xxusage of oem original parts [%] size of segmentshare of used cars

    xx%

    biggest segment (23%) very high income relatively low cost

    focus drive new premium

    vehicles

    oldest segment (avg. 50 years)

    dominated by women rational, traditional

    values want explanations for

    service/price

    e

    r

    - +

    e

    r

    - +

    low-involved traditionalists service-focused rationalists1 247 5034% 49 46

    very high income progressive values typcial OE customer want top services for

    their premium vehicles and ViP treatment

    youngest segment (avg. 28 years)

    cost-oriented very low income drive old and used

    vehicles 75% drive used cars

    e

    r

    - +

    e

    r

    - +

    high-demanding enthusiasts status-oriented youngsters3 438 2833% 54 31

    16

    emotional values and "status"

    cost-oriented very low interest in the

    vehicle and therefore no clear preferences regarding aftersales services

    lowest income rejection of progressive

    tendencies and performance

    drive old and used cars vehicle is not a priority;

    limited interest in aftersales services

    e

    r

    - +

    e

    r

    - +

    Price-focused emotionalists Cost-oriented minimalists5 635 4433

    31Avg. age [years]

    vehicle

    x

    51%

    75%

    56% 68%

    5 9

    114

    8 11

    23% 17%

    17% 17%

    13% 13%

  • 32 Automotive insights | 02.2013

    To learn more about customers' specific desires and requirements, we examined the six segments in terms of the following categories: General preferences regarding cars Criteria for selecting a repair shop Satisfaction with the repair shop Readiness to switch repair shops and reasons why Preferred service packages and contracts

    general preferences regarding cars

    criteria for selecting a repair shop

    emotional connection to the car

    I never miss a service appointment for my car

    3.0

    3.1

    3.1

    my car's appearance is important to me(cleanliness, scratches, etc.)

    I know the precise technical details about my car

    Average2)

    7

    -4

    -6

    1

    -2

    -8

    31

    36

    33

    -16

    2

    -3

    -18

    -19

    -7

    -34

    -35

    -24

    low-involved traditionalistsdeviation (%)1)

    service-focused rationalistsdeviation (%)1)

    high-demanding enthusiastsdeviation (%)1)

    status-oriented Youngstersdeviation (%)1)

    price-focused emotionalistsdeviation (%)1)

    cost-oriented minimalistsdeviation (%)1)

    minimalists, who basically don't care what the car brand and service are like as long as it's cheap.

    As the names of the segments reveal, price-focused emotionalists and cost-oriented minimalists place special emphasis on low price. At the opposite end are traditionalists and enthusiasts, for whom the price of products and service is less important.

    Regarding traditional needs, it's primarily the service-focused rationalists who set great store by top service, namely as regards quality of the service performed, personal support and warranty and guarantee content. By contrast, price-focused emotionalists have few discernible preferences in this area. They view their cars

    whAt mAkes eAch segment unique?

    SiX segments based on customers' specific desires and requirements

    Here the spectrum ranges from high-demanding enthusiasts, for whom the car is sacred and who put great value on first-class service, to the cost-oriented

    as a basic commodity, and repairs and maintenance are simply a necessary evil.

    For high-demanding enthusiasts and service-focused rationalists, fast service is just as important as being able to easily get in touch with the repair shop, such as by phone or internet. Particularly important to status-oriented Youngsters is innovative and mobile communication for scheduling the first appointment and for tracking order status. price-focused emotionalists recognize that being unwilling to pay higher prices means forgoing certain conveniences,

    1

    2

    1) deviation from the average agreement in %; a positive value indicates above-average agreement2) scale: 1 ("absolutely agree") to 6 ("absolutely do not agree")

  • 33Automotive insights | 02.2013

    such as collection and delivery service, or being able to choose a particular time slot.

    The picture is not much different for actual customer support. it's the service-focused rationalists and the high-demanding enthusiasts who prize

    intensive and individual support whether in the form of preferential treatment, express service or even house calls. The price-focused emotionalists and the cost-oriented minimalists put much less value on this kind of treatment.

    I am willing to forgo quality and service to pay a lower price

    they explain the maintenance or repairs in detail

    maintenance/repairs are performed quickly

    repair shop is easy to contact by cell phone or online

    I get preferential treatment when making an appointment

    they make house calls (e.g. for tire changes)

    they use only original parts

    I always pick the cheapest product

    they immediately give me personal attention when I come in

    3.5

    3.8

    1.9

    2.1

    2.8

    1.9

    1.9

    2.4

    2.4

    Average2)

    pric

    en

    eeD

    sco

    nven

    ienc

    es u

    ppor

    t

    0

    2

    0

    -15

    -12

    -4

    -3

    -12

    3

    33

    32

    20

    32

    37

    28

    14

    -3

    -8

    -11

    10

    14

    26

    13

    10

    18

    18

    -10

    -2

    -5

    -7

    -4

    3

    6

    4

    3

    7

    -61

    -49

    -7

    -58

    -68

    -39

    -12

    20

    15

    -1

    -38

    -3

    -15

    -18

    24

    15

    6

    12

    low-involved traditionalistsdeviation (%)1)

    service-focused rationalistsdeviation (%)1)

    high-demanding enthusiastsdeviation (%)1)

    status-oriented Youngstersdeviation (%)1)

    price-focused emotionalistsdeviation (%)1)

    cost-oriented minimalistsdeviation (%)1)

    service priorities

    Quality of the work performed

    Personal support

    Customer's assessment

    1.7

    1.7

    1.8

    -1

    -1

    -2

    17 8

    19 8

    16 8

    -4

    -9

    -9

    -33

    -31

    -26

    3

    6

    5

    low-involved traditionalistsdeviation (%)1)

    service-focused rationalistsdeviation (%)1)

    high-demanding enthusiastsdeviation (%)1)

    status-oriented Youngstersdeviation (%)1)