Automotive Blog

A breakdown in trust? What is the real value of a roadside assistance provider?

Rac Van

Carlyle, the private equity owner of the RAC, has widely been reported as considering putting the UK breakdown provider up for sale, with an estimated valuation of £1.6Bn 1. However the recent flotation of the AA, which disappointed many when shares slid 5% on the first day 2, has lent a pause for thought around the true value of breakdown service providers. In Germany, the two main breakdown service providers ADAC and AvD, (Automobilclub von Deutschland), are still membership driven, not-for-profit organisations. Breakdown service brands have been built on a hard earned reputation for the delivery of emergency assistance and the provision of reliable and impartial reassurance information and support services for the member. Of course, consumer trust can easily be eroded. As Martin Lewis in the Sunday Times put it a number of years ago, “They are not a public service, but commercial operators. Yet they still try to sell on the back of being the motorist's friend, as if they were still mutual organisations owned by and run for their members' benefit. My clarion call is simple: forget loyalty and base your decision on price and service.” 3 Such criticism is perhaps a little unfair, as consumers are fairly savvy and most are probably ahead of the comments here in considering breakdown to be a paid service available from alternative providers, like any other. However, it may be that the priorities change; ANWB in the Netherlands remains a non-profit membership organisation offering a trusted range of insurance and other travel services beyond breakdown, but when such organisations become a predominantly commercial concern, both retaining the trust of members and managing potential conflicts of interest become a greater challenge.

Even when still owned by members, a reputation for integrity is easy to lose. In Germany, ADAC has recently admitted culpability in a scandal over “votes for the ‘Yellow Angel’ award for Germany’s favourite car” due to what auditor Deloitte termed as ‘wilful manipulation’, and automakers have been returning their awards. 4

Finally, the bigger breakdown service providers have long been trusted providers of sensitive and valuable fault data, and they have recognised the commercial potential of this information. For example, warranty provision such as that offered by the AA, is largely reliant, like driver insurance, on good data. But how that data is harvested is changing. As AA Chief Executive Chris Jansen has been reported as saying, “fixing cars these days is more about a laptop than a monkey wrench” 5. Unlike in the UK and Germany, in France the breakdown market is effectively owned by insurance companies, who have an obvious interest in obtaining and managing driver and vehicle data via usage based insurance models. But the long awaited emergence of passenger vehicle telematics, currently and finally being built into new cars by carmakers, and provided through aftermarket devices from insurers and others, suggests that in the longer term, breakdown service providers may become side-lined and their information advantage eroded. Breakdown providers need to revaluate what they want to be and what value proposition they offer. They could become aftermarket providers of telematics services, but they will need to work on gaining the trust of member and carmaker alike to become managers of the member’s telematics data. In the meantime, carmakers, insurance providers and other data hungry service providers may seek more direct and exclusive channels for mining information and providing new services to drivers.

Footnotes:

1 “AA and RAC buyout groups consider stake sales”, Financial Times, 2nd May 2014, http://www.ft.com/cms/s/0/d0c07aaa-d1f6-11e3-8ff4-00144feabdc0.html#axzz38TYpXuKQ

2 “AA motoring group shares slide on stock market flotation”, BBC News online, 23rd June 2014, http://www.bbc.co.uk/news/business-27971598

3 “AA and RAC are not your friends”, The Sunday Times, 18th March 2007, http://www.thesundaytimes.co.uk/sto/business/money/Consumer/article61544.ece

4 “German carmakers return awards amid evidence of vote rigging”, Reuters, 10th February 2014, http://mobile.reuters.com/article/idUSBREA191I020140210?irpc=932

5 “Green light for AA float and RAC set to join its rival on the road to listing shares”, This is money, 7th June 2014, http://www.thisismoney.co.uk/money/markets/article-2651030/Green-light-AA-float-RAC-set-join-rival-road-listing-shares.html

Written by Ben Waller

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