European truck OEMs compete for aftersales market

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
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.

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.

Competition
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.”

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.”