Has the Earth Moved for You After Ford's Move on Kwik-Fit?

by Brian Taylor

Because Kwik-Fit is so dominant in the UK it is easy to over react to the importance of their recent acquisition by Ford. In fact the Fiat owned parts company Magneti Marelli recently purchase some Midas chains in South America. But looking at it from the perspective of a few weeks on, I still believe it is one of seismic proportions and with ramifications for the aftermarket that will shake its very foundations. It follows a pattern in other countries where Ford has made similar moves, so it is clearly part of a global strategy.

And it’s not just more of the same. It is a completely new strategic approach. They have smashed through the wall that has traditionally separated the parts and service business into o.e.s and aftermarket channels. The breach is likely to be opened further by other companies as well as Ford, and nothing will be quite the same again.

Leading Consumer Company

So what is Ford up to? In a recent interview Jacques Nasser, Ford’s President and Chief Executive Officer, was quoted as saying,

"We’re just putting dots on a map. It’s up to you to link them together".

So let’s take up the challenge. Looking at the press release that announced the acquisition only gives a clue to the implications. Jacques Nasser said,

"The acquisition of Kwik-Fit is an important step towards Ford’s goal to become the world’s leading consumer company that provides automotive products and services through world-class brands. Kwik-Fit is an outstanding company that has earned a leading position in the fast-fit market and created a successful customer formula – innovative high value service coupled with convenient locations and knowledge of the customer".

"Kwik-Fit will provide Ford with an expanded capability to service customers owning competitive brands and in many cases older vehicles. It will allow us to interact with millions of customers we are not reaching today. In this way, the acquisition complements our primary effort with dealers to grow their share of the service business with newer vehicle owners".

Sir Tom Farmer, Kwik’s Chairman and Chief Executive said,

"Since the first Kwik-Fit centre was opened in Edinburgh in 1971, the Kwik-Fit group has become the largest provider of specialist automotive services in Europe. It has been our aim to provide the motorist with services from the showroom to the scrap yard. Not only does this development take us a big step closer to achieving this, but it also provides us with a tremendous opportunity to complement Ford’s global strategy and expand the Kwik-Fit brand as widely as possible".

More Than a Vehicle Manufacturer

The important quotes to take out of it all are the ‘leading consumer company that provides automotive products and services’. Not just vehicle manufacturers you will notice. Add to this Tom Farmer’s remarks about ‘providing the motorist with services from the showroom to the scrap yard’ and ‘expand the Kwik-Fit brand’ and we are beginning to get a sniff of what it’s all about.

I believe the Ford move is a clear indication that the company is re-positioning itself away from just being a vehicle manufacturer. Certainly manufacturing - or assembling which closer describes the process these days - is part of their strategy. Recent acquisitions of Jaguar, Aston Martin, Mazda and more recently Volvo, shows it is metamorphasising into a multi-brand vehicle assembler with major status across several sectors rather than just being the biggest volume player.

There will be more assembler acquisition/merger/joint venture announcements like this, that’s for sure. And along with financial involvement with groups of dealers based on urban areas in the USA, the strategic moves with companies like Jardine Matheson in the UK shows how they are polarising control as far as the selling of vehicle brands they are acquiring.

Visteon on Top

But in many ways, selling vehicles is bit of a side issue and a distraction as far as the big strategic implications are concerned. Parts sales have always been a vital part of the business mix – for vehicle assemblers and their dealers. In some years, the profit from parts sales is the only profit a vehicle assembler makes. In fact it is estimated that of all the profit opportunities associated with a vehicle throughout its life, profit from the sales of the vehicle by vehicle assemblers only accounts for 1% of it.

This was dramatically demonstrated by Peter Edge of Knibb Gormezano at the recent ADF Aftermarket Workout held in Stratford-upon-Avon; an event that most attending thought to be the most informative and interactive held for years.

The Automotive Profit Pools

Knibb, Gormezano & Partners

As well as showing the importance of Ford’s banking products, it also demonstrates how parts, and the labour associated with fitting them, accounts for the lion’s share of profit. The Ford banking operation is already in place. So it follows then that it is the development of the Visteon parts operation that shows Ford’s seriousness in changing their business. And industry watchers would be well advised to keep their eyes focussed in that direction over future months and years, rather than being amazed at the more glamorous acquisition of vehicle assemblers.

They have been beavering away acquiring component production and systems assembly companies since their formation, and I believe we will see further mega moves in this direction. And at the risk of being proved wrong in the light of events, although we should not rule Finelist or Allied Signal out of the running, it would now not surprise me if after initially taking a minority share holding – possibly that bought back from BMW/Rover - Ford eventually took over any combined Unipart/Partco business and make it a division of Visteon.

The Unipart/Jaguar contract has been extended to 2008 and Unipart is reported as indicating the bought-back shares will probably be allocated to a long-term partner. We might also see the strategic plans with Pacific Rim vehicle assemblers reflected in relationships here and maybe a stronger bonding between Ford and Honda via the Unipart/Partco links. A clue about VW might also be discovered here.

Clearly, Ford’s toe-in-the-water approach with bodyshop companies and now their acquisition of independent installer chains and recycling businesses is part of a much grander strategic change of direction than some have described. That’s because most people still see Ford in vehicle manufacturing terms. In retailing terms, in the USA, chains like Pep Boys must be on their hit list. And this is where I see Kwik-Fit’s position in the chain - as part of the retailing arm of Visteon rather than a Ford subsidiary.

Over time Visteon, backed by Ford’s extensive banking clout, will become the hub of the completely new mobility provision business – acquiring component production facilities as well as parts distribution and service retail sites across the globe. These acquisitions could be across a much broader range of companies than many think – oil producers, tyre manufacturers, etc. Nothing should now be ruled out and nothing ruled in.

We need to think of Ford as an investment bank rather than a vehicle assembler. The flow chart sketches out a proposal of a new structures. It doesn’t cover all eventualities and some of the links will be two-way as far as component/core flow is concerned. But it shows how simple the network could be compared to present links. The term customer manager is used to describe the focus of local customer support required to deliver the very best customer satisfaction – linking local car owner/operators with the most relevant service and keeping them informed in association with national relationship marketing activities of the vehicle brand companies.

The sub-contract repair specialists will be companies supplying auto-electrical/electronics, air conditioning, navigation system expertise, etc. This model could be used by Delphi or a few other global players – if they are quick enough to buy into the aftermarket while there are still some large owned chains out there.

Using More Appropriate Retailing Brands

The other thing Ford is up to is buying relevant brands. The Ford brand – although one of the world’s best known – is not necessarily right for capitalising on service and parts requirements of owners of older vehicles. Particularly at retail sites and when you consider the advantages of going all-makes for critical mass as well as conquest vehicle sales opportunities. So I suggest the new company will leave the Ford oval as one of several brands on vehicles it assembles rather than the focus for everything they do.

If they end up purchasing the AA in the UK, this brand gives them even more strength in consumer perceptions of quality and trustworthiness. As well as local brands like Kwik-Fit, they may well decide to use it as a retail brand like Lex is piloting RAC Autocentres at a couple of Lex Autocentre sites. Other similar motorist consumer association brands might well be on the hit list.

The future will likely see franchised dealers, certainly the Internet which vehicle assemblers are really working hard on for relationship marketing, and other approved sales points - all selling the vehicles and providing access routes for service and parts whilst they are within warranty. But franchised dealers will not be the only providers of service. Other outlets – some owned chains like Kwik-Fit and others approved independents – will carry out aspects of aftersales care. These ‘other’ outlets and chains will play a major role as the car gets older.

But although the franchised dealer role as the focus for sales and service sites will decrease, their role as customer managers may be heightened as Ford’s move to being mobility providers for life gathers pace. And as well as their recently and future acquired retail chains, new methods of financing mobility will also help give Ford – or Visteon - the consumer links they need.

The Need to Penetrate the Older Vehicle Market

Of course, the customer processes and database marketing capabilities of companies like Kwik-Fit are useful. But they are not what are driving these moves. It is the fact that as parts are lasting longer, the bulk of profitable parts sales are increasingly moving to older and older vehicles. In fact there are several dynamics at work. An extended component replacement period producing a reduced requirement in components and labour per car, over capacity in component production, a growing and ageing parc. John Kiff of the ICDP, another speaker at the recent ADF Aftermarket Workout demonstrated the affect on the parts business very clearly.

It is the profit from these parts sales, along with labour for fitment that has for many years supported the franchised dealer set up as well as being a crucial profit centre for vehicle assemblers. Without it the vehicle assembler/distribution equation can not be sustained – certainly not just from the typical franchised dealer newer vehicle customer base.

Clearly assemblers have no alternative but to penetrate the older vehicle market. Furthermore, end of life vehicle responsibilities will increasingly place costs on vehicle assemblers that will be outside their control unless they own or can strongly influence the channels used by owners of these older vehicles. For example for maximum environmental benefit some components will need to be designed for remanufacturing and multi-life rather than a single life strategy.

All component manufacturers therefore need to capitalise on the sale of the remanufactured goods and put in place good core return channels as well as sales channels. These will enable the vehicle assemblers to dictate the optimum age for taking a vehicle out of service. The big message is that Ford does not see the franchised dealer aftersales departments as capable of delivering this influence on their own, and until recently anyway, existing independent channels were fragmented and outside their control or influence.

Turning Itself Inside-Out

Clearly the Visteon strategy is multi pronged – acquiring companies to build a strong capability for supply and manufacture of integrated systems, acquiring aftermarket/o.e. parts manufacturers and distributors, acquiring retail chains/bodyshops and acquiring recycling/remanufacturing facilities. It recognises that vehicles are in essence no more than complex assemblies of components on wheels, and addressing the needs of these projectiles for their whole life is not only answering the environmental and consumer needs, but it can be profitable if the right channels are in place. The independent sector has recognised this for years, but the new dynamics of parts replacement rates, extended service intervals and environmental legislation has shifted the ground. IT has also enabled vehicle assemblers to communicate with their customers in a radically different way.

At the moment, some of the moves to address this shifting ground are being carried out in the name of Ford, which has a global presence. But the logic of all-makes critical mass means that it must be Visteon that is ultimately the prime mover. I would suggest that under the umbrella of Ford’s considerable financial capabilities, at long last a vehicle manufacturer is turning itself inside out and this has ramifications that are deeper than most people can imagine. The consolidation of vehicle assembling will result in these mega parts companies and their owned or sub-contracted channels becoming the new barons in the provision of mobility. The future for independents must be as part of these channels as sub-contractors, or as very small businesses on the margin.

Providing Effective Choice

Europe is about benefiting consumers. Choice is only good for consumers if it produces a benefit. Making an effective choice will become an increasingly difficult thing for consumers to do as vehicles and legislation become more complex. And if legislation applied to mechanical/technical items is becoming more focussed on vehicle assemblers, then these assemblers need to come to terms with that. It makes sense for them to provide mobility in a manner that gives more choice in areas consumers can effectively influence – models and features - and less choice in other areas they cannot effectively make sound judgements on without extensive knowledge, information and time; i.e. service and parts. The personal leasing product will likely become the dominant product for acquiring mobility. Providing effective controls are in place the result could be more benefits for the environment and consumers and a more efficient way of delivering mobility.

Looser Relationships More Sexy

So hopefully we have joined up some of the dots on Jacques Nasser’s map. Maybe not all of them – but I bet we are not far away from the essence of what’s going on. Some people (ill-informed I would suggest), see the acquisition of Kwik-Fit as taking the competition out of the market. This is Stone Age thinking. You don’t buy a brand with the values of Kwik-Fit to dump it. Someone else will just re-invent it.

But it does highlight an obvious but interesting point to come out of the acquisition of Kwik-Fit by Ford. It is easier for a predator to pick off a single entity than a group of independents with looser links. In a way it appears size is no barrier to consummating a relationship. In fact the bigger it is the easier it is to absorb into an even larger company. And it has to be recognised that what is big in one sector is relatively small in another. Now that’s something to think about isn’t it? Because building size as a defensive tactic is now proven to be a false strategy. Building size by partnerships is something much more difficult for predators to swallow. So this sort of relationship will suddenly have much more sex appeal to aftermarket component manufacturers looking for some form of balance to o.e clients. And maybe some of the independents still fighting a rear guard action on their own might realise the lifeline it offers. Funny how things turn out isn’t it? (7/99)