Globally,  vehicles older than 2-3 years are taken to the independent market (IAM) for servicing due to competitive parts and service pricing. The standard warranty period for passenger vehicles in Europe is 2-3 years. Therefore, IAM gains market share from the franchised network as the vehicle ages. Additionally, dealer channel aftersales are lucrative for OEMs which are challenged by slow new car sales in Europe.

In Europe, the original equipment service (OES) channel is estimated to have around 38% market share of post-warranty parts revenue in 2015. This market share is expected to decline gradually over the next 5-7 years as the vehicle age increases in Europe.

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The migration of car repair and maintenance from the OES channel was accelerated post the Block Exemption regulation of 2002, which mandated right to repair in Europe. The international debt crisis had a negative impact on OES channel revenue, as customers scouted for economical repair or deferred repair and maintenance of their vehicles. The European OES channel share will be more or less stable in the coming years though Brexit is predicted to have a negative impact especially on the UK aftermarket due to the escalated costs of labour and logistics.

However, the OES channel is expected to guard its market share in the coming years due to penetration of telematics driven aftersales and adoption of new business models such as parts e-retail and all-makes repair and service network. In order to attract older cars to its franchised network, OEMs must emulate some key characteristics of the independent aftermarket in order to offer value to the older car owners. Certain key characteristics are discussed below.

1) Quick service without prior appointment and longer working hours makes the IAM attractive for vehicle owners who have busy schedules. This gap has been filled in by OEMs such as BMW, Ford, and Renault who have introduced quick services without prior appointment in its BMW Fast Lane, Ford’s Quick Lane, and Renault Minute facility respectively.

2) As single brand dealerships shut down due to high operational costs and lesser traffic, OEMs are strategically filling in the space with its multi brand service network. Examples of multi brand service network of OEMs are Motrio (Renault), EuroRepar ( PSA), Checkstar ( Fiat) and so on. This business model not only drives the bottomline through higher traffic to the OES channel network, but also improves brand visibility.

3) OEMs are aggressively competing with lower priced IAM parts by re-focusing on a 2nd line of aftermarket parts and remanufactured products. Examples of 2nd line of aftermarket products are Ford’s Motorcraft, PSA’s Eurorepar, and Renault’s Motrio.  Remanufacturing involves completely disassembling the original part, followed by the salvage of components that are suitable for remanufacturing, then reassembling with new or remanufactured components and testing to OE standards. Remanufactured parts meet factory specifications, incorporate the latest engineering changes, and are priced approximately 30-40% lower than comparable new parts. Most OEMs carry a remanufactured line of parts particularly in the engine, transmission, and starters/alternators categories.

Apart from directly competing with the IAM, OEMs are collaborating with the IAM directly or indirectly by liaising with independent parts and service retailer/aggregators.

  1. Direct supply of parts to the independent aftermarket helps in getting access to the 62% market share that the IAM has in Europe. For example,  Volkswagen supply to the independent motor trade in the United Kingdom through its own distribution system called the Trade Parts Specialists (TPS) program. The TPS program is the first and only OEM owned IAM distribution program which has been created to gain access to IAM in the United Kingdom, which comprises 75% of the aftersales market in the country. PSA is ramping up its hub and spoke logistics platform in Europe which would increase delivery efficiency from 75% to 85%.
  2. OEMs such as Ford, Kia, and Toyota are registering their franchised network on service aggregator sites such as Whocanfixmycar, which allows vehicle owners to choose service stations based on price, ratings, and proximity. This helps OEM gain visibility by addressing the customers need for price transparency. PSA recently acquired a Danish service aggregator site, Autobutler in a bid to engage value shoppers.
  3. As online retail offers cost and convenience to the value conscious parts buyer, this medium is gaining in popularity and its market size is predicted to grow at a CAGR of 10-15% in Western Europe and 15-30% in Eastern Europe. This growth is triggered by the strong penetration of the Internet, legislation promoting cross border e-retail, and the discounts of online retail. OEMs such as Renault and BMW have collaborated with eBay in the United Kingdom to sell its genuine parts through the online marketplace.  BMW has gone a step ahead in leveraging this trend by building its own parts e-retail store in Germany to build a direct relationship with the customer. PSA has acquired of Mister auto- parts eRetailer and Autobutler, service aggregator in order to leverage its high VIO share of 13% in Europe. Renault has also introduced a B2B online retail platform called Renaultparts.com in addition to its existing B2C ecommerce activities.
  4. OEMs will be progressively restricting the access of third party service providers to vehicle data. By eliminating the OBDII port (example Volvo XC90), OEMs can monetize its access to third part diagnostics and service providers.
    Thus OEMs are taking a two-pronged approach to restrain market share loss as the average European vehicle will be older than 10 years by 2022: compete or collaborate. Adjustments to the composition of the existing franchised network will help OEMs become leaner and hence have a greater degree of flexibility to compete with the IAM. In cases where OEMs run a risk of jeopardizing existing dealer contracts and legislation, OEMs will have to find a way to collaborate with the IAM to imbibe its best practices.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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