Summary: Future Of Automotive Aftermarket And Car Servicing: Consumers Will Have More Channels To Shop Around
Michelin buying 40% stake in French online tire retailer Allopneus, and then taking over British tire eretailer Blackcircles.
U.S.-based service aggregator OpenBay launching an app that will detect vehicle maintenance issues through a plug-in device and then automatically send you repair quotes from local service garages.
French carmaker Peugeot eyeing online parts seller Mister Auto.
These are just some of the top recent headlines from the normally slow-moving world of the automotive aftermarket, and we are just talking about the past three months here.
While driverless cars and dashboard pyrotechnics draw all the buzz, there are some fundamental shifts happening in the way consumers repair their vehicles, buy parts and access services. These changes are not just a reflection of evolving driver preferences in areas of connectivity and purchase, but also a sign of automakers, suppliers and retailers adopting new business models to increase and secure future revenue and customers.
A recent Frost & Sullivan study identifies some of the trends in its just published study, “The Future of Parts and Service Retailing in the Automotive Aftermarket.” Here are some of the big issues that are expected to shake up the aftersales market around the globe within the next 10 years:
The Rise of Parts eCommerce: Online B2C sales of automotive parts and accessories alone are expected to become a $20 billion business by 2020 in North America and Europe—an estimated 9-10% penetration rate within overall aftermarket. While Western markets will drive the transaction volume, emerging market such as China and Brazil will see explosive growth in online parts purchasing.
Direct Selling will be the Norm for Suppliers and OEMs: Bosch ’s online shop on leading Chinese ecommerce site TMall and its success (it generated an estimated $9 million USD in sales in its first year of existence) has kick-started a gold rush. Many car companies and suppliers are setting up shops on TMall.com, with the aim of selling directly to end users and businesses. The trend is likely to catch on in other emerging markets, where aftermarket is less structured and those on top of the value chain have more flexibility to reimagine their distribution system, particularly through digital channels. But don’t assume that Western markets will remain untouched. Companies such as Goodyear are already going direct to customers, setting up portals where end users can buy directly from them with dealer fulfilment. It would be interesting to see how suppliers and OEMs navigate the tricky waters of channel conflict in established markets.
B2B Sales will be Battlefield Between Online Players and Traditional Distributors/Retailers: Online pure players have found initial success targeting consumers with maintenance parts (filters, lubes, etc.) and tires. However, the litmus test for the longevity of these participants will be selling to business customers such as garages and fleets. China’s online B2B giant Alibaba already has a strong presence in China, and its recent IPO in the North American market signals growing interest in penetrating the U.S. aftermarket. Other participants, such as Itaro, are eyeing Latin American markets such as Brazil with dedicated portals for businesses. These B2B strategies are expected to shake up the aftermarket distribution system. Competitors such as Autozone are prepping their own capabilities to up the battle, and others are expected to follow.
Service Aggregation, Mobile Service Next-Gen Business Models: The ultimate test bed for radical change in the aftermarket will be the integration of B2B and B2C business models. How do you integrate the two in a digital environment? That’s the multi-billion dollar question. Online sales so far have been primarily targeted at DIYers or early adopters—people who can do some minor maintenance on their vehicles or are buying accessories for their cars. But the larger vehicle-owning population relies heavily on garages and physical retailers for their maintenance needs. How do you engage these customers digitally? Emerging business models such as service aggregation hint at viable future scenarios. Currently, service aggregators such as Openbay (U.S.), RepairPal (U.S.) and WhoCanFixMyCar (U.K.) work somewhat like an Expedia or TripAdvisor for vehicle service, digitally connecting consumers with garages on the basis of location, needs and estimated quotes. In the future, one can expect them to enable remote diagnosis of vehicles—as Openbay is piloting with a new app—so that the customer can pay online for service and parts. These websites have the capability of becoming parts aggregators as well with suppliers selling through them. They can become mediators between not only the customer and service center, but the supplier and service center as well, setting up their own closed, fully functional distribution channels.
Many of these transformations will be driven by new entrants to the world of parts and service. For instance, localized online auto parts retailers such as the U.S. Auto Parts Network (U.S.) and Oscaro (France) came into the market from nowhere, slowly carving out a niche. Of course, since then, the likes of Amazon have bettered these companies, but Amazon is in no way a traditional automotive company.
The emerging threat has forced the well-settled participants to take stock of their business, mitigate challenges and unlock new opportunities. Michelin’s stake in Allopneus makes complete sense in light of the fact that the latter has not only evolved into an estimated 150 million Euro company in just a few years, but also that nearly one in every five tires is expected to be sold online in France by 2020.
Similarly, automakers are also looking to move their business further downstream, at least in the jurisdictions where they can. Car companies such as BMW have already set up online shops across digital marketplaces such as eBay and TMall, with others following closely behind.
General Motors recently rolled out prognostic capabilities through OnStar, and it may not be far from introducing features such as the ability to make maintenance appointments from vehicles and even pay for services while on the go.
A driver will no longer have to call someone at their car dealership to book their regular under-warranty service. The car (the machine) will talk to the dealer management software and servers (another machine to enable machine-to-machine communication in car servicing) before a service is due or there is parts failure. It can give you prices and book slots based on your location in real time for a hassle-free service.
Most interestingly, in the future, car companies will set up their parts market places, thereby selling parts through the click-n-post model, click-n-collect (at dealership) or click-n-fit, and a mobile van will come to your home and fit it for you. The great benefit for car companies will be to sell branded parts to those mom-and-pop shops that currently don’t buy branded parts.
The next five years will indeed be an exciting era for the aftermarket—an industry that is long due for overhaul. To quote music legend Bob Dylan, in this brave, new world of digital transformation in aftersales, those “not busy being born are busy dying.”