Service and repair: exploitation of the industry s last profit resort? Prof. Dr. Susanne Royer Uwe Stratmann Questions to address today What is the position of different types of in the independent service and repair markets? What are the impacts of technology and the related aspects on the future evolution of the different independent repairer types? What are the evolving strategies and business models in the independent repair sector? Glossary of terms VM: Vehicle manufacturer OES: Original equipment supplier ARs: Authorised, with a VM branded franchise Fast-fit: No wait service concept, focussing on simple operations (e.g. Speedy, Midas) Auto-centre: outlet with a self-service area + a workshop focussing on simple operations (e.g. Norauto, ATU) Service chain: generic term for fast-fit and auto-centre chains Independent repairer (IR): traditional mechanical garage, truly independent or member of an independent franchise Independent franchise: franchise dedicated to independent. Can be backed by parts distributors, OESs 1
Agenda The competitive universe The technology issue Competitive analysis and strategic evolution of business models Conclusions General trends in the after-market A stable, mature market, but structural changes Older cars, vehicle technology, legal environment A variety of initiatives for the independent sector Manufacturers trying to grow franchised activities Some actively building independent repairer networks Also players trying to secure channels and improve their position in independent sector Parts manufacturers (Bosch, LuK) Parts distributors, both individual (Motoo) and co-operatives (Groupe Auto Union) Competition of after-sales business models Range of operations Multi-brand, multi-operation Specialised on simple operations Multi-brand hardfranchises Brand focused, multi-operation Authorised Highly integrated, cherry-picking Multi-brand softfranchises Standalone Service Chains Level of central control 2
Decreasing number of service points Service points in W. Europe (000 s) 250 200 150 100 50 0-13% -18% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Independent service outlets* Authorised outlets Source: ICDP & HWBi, 2006 * IRs and service chains, excluding body and petrol stations Technology in service and repair Need for a clear definition Technology is a very broad term in relation to vehicle service and repair Technology refers to all electric, electronic and software components, modules and systems It also covers mechanical parts when electronically connected part of system/module Mechanical components declining as a proportion of vehicle value % of vehicle value 100 90 80 70 60 50 40 30 20 10 0 10 90 2 22 76 Nature of standard repairs is changing 1975 2000 2010 (est.) Structural/mechanical components Electronic components Software 13 32 55 Source: Aachen University 3
Resources and cooperative networks are vital to cope with technology Availability of technical information and diagnosis tools depends strongly on the resources/ equipment and the partnership network Specialised branded partnerships (e.g. with VMs) and the use of specialised seem to be contributing Many small do not have the equipment (e.g. ICT equipment) to be prepared for the future VMs and OES will mainly decide about overall conditions to access information, software etc. Resourceful, organised repairer models are well placed to master the technology issue Competition of after-sales business models Range of operations Multi-brand, multi-operation Specialised on simple operations Multi-brand hardfranchises Brand focused, multi-operation Authorised Highly integrated, cherry-picking Standalone Multi-brand softfranchises Service Chains Level of central control Fewer standalone IRs % by type of independent outlet * % in total independent outlets 100% 80% 60% 40% 20% 0% Share of standalone IR outlets has fallen from 82% to 61% of the total (W-Europe) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (est) Fast-fit Auto-centre IRs with franchise Standalone IRs Source: London Economics, ICDP * IRs and service chains, excluding body and petrol stations 4
Key business characteristics Main business principles Price leadership Traditional entrepreneurship Repair and service focus is still on standard mechanical repairs Frequent repairs with low diagnosis requirements 90% of vehicles visiting IRs are out-of-warranty Service and repair are 75% of total turnover on average Most independent report a stable business during last three years in particular the larger ones E.g. 76% of UK with growing turnover Increasing competition for IRs Fellow IRs not seen as core competitors Core competitors from IRs perspective 1. VM networks (all markets) 2. Fast-fits and auto-centres (Germany, France and UK) Opportunities and threats from VM strategies Opportunities through improved cooperation and open points in rural areas Threats from extended warranties, service agreements and in particular through stronger market protection Ongoing consolidation is seen as positive, in particular by larger, resourceful Future challenges Improve electronic and organisational skills Rising demands on (technology, competition, management) require a certain size Size, resources and partnerships are decisive Stronger expect stable business Increasing proportion of independent trained in electronics/software Diversification into new business fields To compensate for losses in traditional areas E.g. Body repair, media systems, road assistance Further steps into new and used car sales 5
Conclusions - strategic requirements Technical equipment Human resources Financial resources Infrastructure Resources IRs need to reach a certain size threshold to survive? Partners Skills Compensation for the lack of own resources To get access to strategic resources Technical skills Organisational & management skills (become more important with rising size) Competition of after-sales business models Range of operations Multi-brand, multi-operation Specialised on simple operations Multi-brand hardfranchises Brand focused, multi-operation Authorised Highly integrated, cherry-picking Standalone Multi-brand softfranchises Service Chains Level of central control Relevance of multi-brand franchises EU-5 5 markets 60% 50% 57% 40% 30% 20% 10% 40% 30% 25% 20% 0% France Germany Italy UK Spain % of franchisees out of total IRs outlets Source: ICDP 6
Franchised independent : a high growth sector Number of outlets 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0 2002-2006: 75% cumulative growth Germany France Italy UK 2002 2006 Source: ICDP Classification by franchise requirements Typical conditions Hard franchise Medium franchise Low franchise Size of workshop/ workshop equipment Business turnover/ number of mechanics Compulsory training Annual fees Minimum parts purchase per annum Corporate identity (mainly exterior CI and signage) Source: ICDP, 2007 400+ m 2 lifts, bays, diagnostics Min. 300k minimum 3 Yes 2000 + Yes (E.g. minimum 50,000 purchase) Full CI kit No (often recommendation) 500 to 2000 Either none or agreed with local parts distributor (E.g. 20%-30% clause) Some logos, totems 0 to 500 Normally agreed with local parts distributor Basic CI elements Soft-Franchise: Motrio Outlets 7
Hard Franchise: Stop+Go Pilot Outlet Franchise categories Number of outlets 7.000 Soft franchise with medium requirements is the most common type 6.000 5.000 4.000 3.000 IR franchises relatively undeveloped 2.000 1.000 0 Germany France Italy UK Hard Soft - Med Soft - Low Source: ICDP, 2007 The main franchise players Hard Medium Low Germany Bosch Partner System (Stop+Go) VM (Automeister) AD AutoDienst AutoFit 1a Autoservice Coparts (GAU) Meisterhaft AutoCrew Italy Bosch Car Service (Stop+Go) Magneti Marelli Punto Pro (GAU) A Posto (Rhiag) Garage AD Point Service Cecauto Riparauto VM France Bosch Car Service (123 Auto Service) Eurorepar Motrio Garage AD Top Garage (GAU) Motorcraft Precisium Auto Primo VM VM VM UK Bosch Car Service [Autocare(GAU)] Unipart Autosafe Source: ICDP, 2007 VM = VM franchises for IRS 8
Source: ICDP Standards parts Standards personnel Standards equipment 3 International network 2 1 Parts coverage on site Domestic network size Operation range Brand specialisation* ICDP 2006-2009 Added value from independent franchises for standalone? Support by franchise concepts Marketing Technology Management Parts Distribution Network Advertising Franchise concepts Conclusions Benefits of a franchise membership not always clear for Need for comparison between costs and benefits: Reduction of entrepreneurial freedom, fulfilling franchise standards Benefits of support through franchise system Need for clearer franchise control and support But hard franchises struggle to get enough repairer partners It is a parts distribution channel for many franchisors that is the core strategy Limited skills to steer a service and repair organisation Forward integration: : OEM multi-brand concepts Very different approaches Motrio Model Characteristics Franchise Standards Network Operations Parts Source: ICDP 9
Competition of after-sales business models Range of operations Multi-brand, multi-operation Specialised on simple operations Multi-brand hardfranchises Brand focused, multi-operation Authorised Highly integrated, cherry-picking Standalone Multi-brand softfranchises Service Chains Level of central control Repair and service chains Auto-centres International: Norauto, FeuVert, L Auto (F), ATU (D) National: Roady, Etape Auto (France); Aurgi (Spain); Nationwide (UK) Fast-fit chains Two major chains in Europe Speedy and Kwik-Fit - Midas Tyre chains Operated by tyre manufacturers Main focus is tyre sales! International: e.g. Euromaster/ ATS, First Stop National: Central Tyre (UK), Vergölst (Germany) Operated by tyre wholesalers/others Low- medium complexity service, wide range + retail Low - medium complexity service Different organisation models Type of ownership & range of operations Range of operations Wide & complex Medium Narrow & simple FeuVert FeuVert Euromaster A.T.U A.T.U Pit-Stop Pit-Stop Franchised outlets Source: ICDPA, ICDP Degree of independence Integrated network 10
Auto-centres & fast-fit fit chains Contrasts across Europe Number of outlets 4500 4000 3500 3000 2500 2000 1500 1000 500 0 France Germany Italy Spain UK Auto-centres Fast-fits* Tyre chains** Source: ICDP, 2007 *Excluding VM fast-fits (e.g. Renault Minute) **Sites doing operations other than tyre change Competitive strengths of leading fast-fit fit & auto-centre operators Competitive Strength Marketing Technology Management Parts Strong marketing & pricing policies Cherry picking strategy Centralised CRM Direct purchasing Central negotiation (fleets) Homogeneous advertising Reservoir of own resources Workshop management systems Centralised invoicing for fleets Efficient ordering & supply process Negotiation power But customer satisfaction seems to be a problem for chains French Survey Category Independent garages VMs franchised networks Fast fit and auto centre chains Source Ipsos, 2005 % of fully satisfied customers 52% 37% 28% German Survey Category % satisfied customers Meisterhaft 59% VM dealers: brand A 55% Bosch Service 52% 1a Autoservice 51% VM dealers: brand B 41% VM dealers: brand C 38% VM dealers: brand D 36% VM dealers: brand E 34% Pit-Stop 34% ATU 25% Source: Puls 2005 / ACI Trendmonitor 11
Strategic competitiveness of business models Key advantages of the model Key disadvantages of the model Business evolution Strategic challenges Standalone IR Entrepreneurial motivation & performance Most crucial aspect is size & resources Larger IRs (>3 mechanics) see positive evolution Survival despite size find the right partners Independent franchisees Strong franchises compensate lack of IR model resources Many (parts driven) franchises do not have experience with network management A consolidation of the number of 'brands' is foreseen Need for organisational improvement & clear strategy Chains Large, powerful competitors Low motivation at outlet level Expansion, focus on high profit segments limit reached in some markets Management of complexity, especially operating issues Competition of after-sales business More involvements models Range of operations Multi-brand, multi-operation Competitive but hard to Brand focused, multi-operation attract partners Operational requirements encourage scale: fewer but better organised with sufficient partnerships Specialised on simple operations Standalone Multi-brand softfranchises Multi-brand hardfranchises Franchise organisations need a stronger strategic approach - evolution towards higher control? in the independent sector Authorised Strong, strategic players; But still motivation Highly integrated, problems cherry-picking and Cherry market segments are limited. Service Chains Level of central control 12