European truck OEMs compete for aftersales market

21 January 2016

The European truck aftersales market is extremely profitable, and has traditionally been in the hands of OEMs. Changes are afoot however, as technology and new players are seeking to service customers’ needs more efficiently than OEMs, cutting into margins and market share. In a recent Roland Berger report, the consultancy considers two ways for OEMs to continue to stay competitive: delivering a strong base service, and innovating ways of improving services for the future market.

The European truck aftersales market represents the most profitable business segment for truck OEMs (original equipment manufacturers). The market, made up of customer service, maintenance and spare parts, has seen increased competition in recent years as more and more suppliers, wholesalers, workshops and players from outside the industry try to break into the market with new business models.

To explore the changing trend, and increased competition faced by OEMs, Roland Berger released a report titled ‘European truck aftersales 2030 – Securing the most profitable business’. The report also considers ways in which OEMs can improve their competitiveness and thereby hold onto their customers and their profits. For the report, the consulting firm engaged a wide range of industrial experts from some of the largest players.

Aftersales profit margins

Aftersales tend to contribute only a small amount of revenue compared to the sale of new trucks, the gross margin for the segments are widely divergent however. For the sale of the base truck, unit margins are between 0% and 5%, while for the aftersales this ranges between 25% and 50%. “Gross margins on spare parts, maintenance and service can be as high as 50%,” explains Norbert Dressler, Partner at Roland Berger. “The OEMs simply cannot afford to pass that up. That’s why they must act in response to the new competitive context, and they must act now.”

The margins are under pressure from a number of changes within the market however. One of which is the digitisation of the maintenance and repair processes. Further, total transparency will put margins under ever greater pressure, and the rise of new processes, such as service factories, may lead to the replacement of today’s workshop landscape. In addition, emerging disruptive technologies, such as autonomous trucks, offer very high safety standards, reducing crash repair requirements and thereby impacting parts & service sales and insurance products.

Vision of a service scenario 2030

Changes in the lay of the land from technology advances are only one area of concern for OEMs; there is also increased competition within the market as more and more players are entering to make a cut. Customers with large truck fleets place considerable importance on their fleets being on the road. Fast repair turnaround is therefore key, something competitors may be able to better deliver through changing business models and market access.

Suppliers are gaining business relevance driven by forward integration and access to the customer interface, as they are able to bundle their know-how in independent workshop systems and offer a premium, one-stop service on a 24/7 basis for a wide variety of makes and models. Independent wholesalers, on the other hand, are gaining power from consolidation, as they bundle their purchasing power and set up their own workshop concepts supported by private equity. Lastly, independent workshops are becoming genuine competitors to OEMs due to their strong flexibility and fair value repairs.

“All of these players have different business models despite operating in the same market,” comments Dressler. “So what OEMs need to do is develop a comprehensive portfolio of services to optimally cover the individual customer needs. That is the only way for OEMs to defend their share of the aftersales market.”

Doing things right

To meet these challenges the consultancy notes two key areas for OEM players: doing things right and innovating to do more.

The first key area is improving the base-line offering. OEMs must structure their services in such way that they enable them to compete with the products and services offered by suppliers, wholesalers and workshops. According to the firm, it involves five success factors along the distribution chain:

  • Offer a broad spectrum of spare parts in different price categories to address even price-sensitive customers;
  • Use connected assistance systems as standard to support both fleet operators and truck drivers;
  • Understand the lifecycle of a truck and the requirements of the market to enable competitive pricing;
  • Optimise spare parts logistics to trim process times in the workshop and keep downtime to a minimum;
  • Offer customer demand oriented all-in-one services 24 hours a day.

In addition, innovation will be required for OEMs to ensure that their baseline service meets customers’ needs and expectations. Philipp Grosse Kleimann, Partner at Roland Berger, notes that increased technological development will need to be met with improved digital offerings. Data-based based technologies will enable vehicles, and even entire truck fleets, to communicate with drivers, OEMs and workshops directly, to allow for the potentially lean and waste-less delivery of services. This will improve efficiency for both customers and OEMs. “The key factor distinguishing between rivals in the aftersales business will no longer be the brand name. It will be the efficiency of the products and processes they offer,” adds Kleimann. “OEMs need to position themselves correspondingly.”


Four ways digitalisation is transforming car brands and dealers

16 April 2019

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”