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The Changing Market The
Speakers John Kiff works for Professor Dan Jones at the Lean Enterprise Research Centre based at Cardiff Business School in the University of Wales. Since 1996 he has led the International Car Distribution Programme aftersales’ research team and has spoken at numerous industry conferences throughout Europe. His recent work on how the parts business is moving towards older and older vehicles poses some big questions to vehicle assemblers and their franchised dealers, but it presents some even bigger opportunities for the aftermarket. But capitalising on these opportunities does not come without the pain of change. The aftermarket is just beginning to wake up to the importance of his work in this area. He looked at the market place and the patterns of parts distribution, along with the resulting effect on motor factors and suppliers. Consolidation in the aftermarket and coping with the changes were covered, along with identifying the main competitive pressures facing delegates. He built on the rationale developed during the earlier presentations that were focussed on technology, providing some key pointers as fuel for the discussions in the afternoon. After explaining the work carried out by the International Car Distribution Programme, John Kiff then looked at the market place structure and likely changes forced by the changes in product technology and use. He covered four main topics:- 1) The impact of technology, quality and reliability on aftersales Under this topic he again restated some of the points made by Peter Edge and Brian Knibb in their presentations on technology. Whichever way you look at it – by the volume of jobs or the value of the aftermarket – the trend is for market contraction. Warranty claims are reducing, service and parts needs are reducing, vehicle faults are reducing - although still higher on older cars, cars are lasting longer, repairs are reducing, accident rates are reducing despite increases in traffic, and insurance company pressure is reducing profitability for companies supplying parts for accident repair. 2) Lean parts supply systems and customer service He also covered the principles of lean supply systems that are necessary to provide cost-effective service and repair work that delivers the car fixed first time when promised at a competitive price. He pointed out that pre-diagnosis and correct parts identification was the key to enable parts to be prepared before hand – parts that would fix the car first time because they were correct. In a scenario of expanding part numbers the problem needs to be addressed from a channel point of view rather than each installer and factor ensuring his own backside is covered. He pointed out the role that parts distribution played to ensure parts availability, along with the fault lines in the current system. A system of national and regional warehouses need to be more closely linked with installers rather than the current un-economic system which typically produces an over-stocked system with too much slow moving stock at installer or local factor level and not enough in the channel for fast delivery to where its needed. Funding enough parts in the constipated system costs too much – in money and incorrect parts supplies. To a greater or lessor extent this basic scenario applies to vehicle assembler franchised dealers and independent parts distributors. 3) The vehicle assembler’s challenge Vehicle assemblers are addressing these limitations and some appear to be going for vertical integration – Ford/Kwik-Fit. Going lean is relatively easy on a single marque basis because the franchiser makes standardising systems easier and the number of part numbers is not so great. But apart from the giants – volume is difficult to achieve. 4) Is there a future for the Independent garage? Independent garages have a more complex supply system and the need to feed an all-makes appetite. Yes there is a decline in the value and volume of parts and service work associated with cars. But most of that reduction is with younger cars – typically franchised dealer customers. Future aftermarket – older cars The reductions once cars get older are not so great. So the market for parts and service is moving to ever older vehicles which will by nature be with third and fourth owners – typically independent sector customers rather than franchised dealers. The value of these cars declines as they get older so the proportion of total mobility investment in parts and service each year increases as cars move to their fourth and fifth owners, typically with 8, 9 and 10 year old cars. Fleets too are looking outside the franchised dealer regimes to save costs – as are insurance companies for accident repair work. There is a future for professional independents working as part of an integrated parts supply channel. A future much bigger than those still seeing the market as franchised or non-franchised would recognise.
Vertical integration or sector dominance Changing Market table chairman Andrew Page reported back that the jury was still out as far as whether vertical integration or sector dominance was the best strategy for companies involved in parts distribution. In favour of vertical integration:-
Against vertical integration
In favour of sector dominance
Against sector dominance
Ford and Kwik-Fit Looking at the full implications of Ford’s acquisition of Kwik-Fit prompted some interesting discussions. There was a discussion about whether the strength of Kwik-Fit was its culture and in turn whether that culture could survive within the Ford environment. There was also the view that Ford had bought in expertise to help it dominate the sector. But some tables thought that parts distribution companies could be on the hit list – Unipart/Partco. Allied Signal, Finelist etc. The general view was that there would definitely be more formal links created between companies operating in the aftermarket sector. Current players can either look at these developments as personal exit opportunities or as opportunities to become players in a much larger game by cementing relationships and partnerships with suppliers. And don’t be blinkered. Look further afield at businesses you may not have previously considered as potential partners – franchised dealers and particularly dealer groups. Parts brokering for a range of o.e parts brands is a growing phenomena. Parts buying groups Looking at buying groups, the overall consensus of the brainstorming tables was that they are needed. Many long held principles may need to be brushed aside to welcome in the new sector structure. Better co-ordination between buying groups will be needed to create national account capability within an overall all-makes independent installer image. Holding back the development of this structure q People and companies will want to retain as much of their independence as possible. q Individual egos and personal aspirations will work against the commitment to a consensus and team approach. q Some manufacturers and suppliers will still see the creation of a super independent distributor/installer chains as a threat. Franchised dealers – the enemy or partners Whether franchised dealers should be considered as partners rather than enemies prompted some strong debate. It was felt that some dealers parts department left a lot to be desired and would not make fully committed partners. Franchises vary with their ability to operated local or regional parts strategies. There is clearly a need and an opportunity to help dealers with their other makes used car refurbishing/servicing. The politics of the relationship between the franchised dealer and his/her vehicle assembler franchiser needs to be born in mind. Upsetting your franchiser is not a good idea when networks are contracting. Supporting the franchised dealer is the offer. Not creating another stick for the vehicle assembler to use to beat your partner with. Live in the real world rather than a dream world based on wishes and legends. There is the opportunity to develop a two-way traffic – parts one way and purchasing vehicles and o.e parts another way. Some fleet customers and private customers with cars within warranty still need o.e parts. When setting up a relationship with a franchised dealership – define whether a local or dealer group approach is necessary. Or even whether a direct deal with the vehicle assembler franchiser is necessary – Partco and Toyota for example. Be professional in the way you approach these businesses and look at it from their point of view. And always bear in mind that most Dealer Principals come from showroom background rather than aftersales departments. Other technology topics General discussions about other topics centred on
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