“All In” – the rise of bundled aftersales

In the last couple weeks, Volkswagen UK launched a new service offer on cars from 3 to 6 years old, offering two years’ warranty, roadside assistance and MOT (the annual roadworthiness check) at a cost of £33.45 (less than €40) per month.  Other examples of service offers include Genesis including warranty and service for five years in the price of the new cars they are currently launching in Europe, Polestar including three years’ service, and Renault offering 3 years’ maintenance and warranty in younger used cars sold under their ‘Garantie OR’ label in France for a payment of just €1.

All of these – and many others that are on offer on both new and used cars from manufacturers and dealers – reflect the common need to retain the aftersales business in order to support dealer and OEM profitability.  Whilst new car launches, fancy showrooms and online sales channels grab the headlines, it is aftersales that underpins the profitability of most dealerships across Europe, and makes a strong contribution to OEM profitability through parts sales.  However, this foundation stone is constantly under attack from the independent aftermarket as they gain in professionalism, and are seen by many to offer a better value alternative to the use of franchised dealers.  Their traditional focus on older cars is changing, and some fleet operators for example use independent repairers as a matter of policy, even on newer cars under warranty.

This competition between the franchised and independent sectors is referenced in the Evaluation Report on the Automotive Block Exemption produced by the European Commission last Friday.  This report was commented on in detail by my colleague Andrew Tongue in a blog for ICDP members, but the Commission refers to independent repairers as a critical competitive counter-weight to the OEM authorised networks, and they flag the likelihood of change in the regulations to ensure that they can still fulfil this role.  Their focus is likely to be on the inputs needed by the independent players to compete, such as technical information and data access, rather than commercial offers to consumers, but that makes the continuing development of these offers even more important.

Whilst all service offers from OEMs have the same aim of retaining aftersales business in their authorised workshops, primarily those operated by dealers, there are some variations in the thinking that sit behind that.  If, like Genesis, you are launching a new premium brand against the established position of the German Big 3, Jaguar Land Rover and Volvo, then you need to differentiate your offer, and part of that is around customer service.  I have not seen details of the Genesis offer, but presume that as in the US, servicing will be done by Hyundai dealers and collect and deliver services will be used so that the Hyundai and Genesis customers don’t end up standing in the queue together at the service desk.  For other new entrant brands without the benefit of riding on the back of sister brands, early aftersales retention is also critical as there is no initial parc, and therefore zero aftersales contribution in the early days.

In the case of BEVs, other factors come into play.  The work content in aftersales is in truth much lower than for combustion cars, although manufacturers have generally tried to hold to the common annual service interval, even though this is mainly about checks rather than oil changes and timing belts.  Including service as Polestar are doing makes it easier for this ‘annual service’ mentality mindset to be extended into the BEV era, maintaining customer contact and the aftersales revenue stream.  Although in ICDP modelling, we continue to assume this behaviour and a higher loyalty to the franchised sector because of perceived complexity and specialisation needs, there is a risk that BEV customers will have a ‘shaver’ moment and decide that if they don’t have their electric shaver checked regularly, why do they need to have their electric car checked?  Newcomers like Tesla and Aiways who do not follow the established players in this respect will serve as a pointer to the more flexible approach.

In the case of used cars, like the Renault and VW examples, this is about protecting the dealer aftersales business at a time of structural market decline, and trying to retain cars longer in the dealer network.  As manufacturers recognise the improving reliability and reduced work content in their newer models, they are able to make even more attractive service and warranty offers, and when work is required that is not included, such as brakes or tyres, the car will be in a dealer workshop rather than at an independent.  For dealers, this additional work is key to profitability as manufacturer service plans usually have lower margins on them than customer-paid work.  Some dealers also dislike the fact that manufacturers become responsible for an even larger part of their total business, compounding the concerns that some already have about the prospects of agency being applied to the new car business.

Taken together, the trend however is clear.  Whatever the motivation, inclusive service or service plans promoted at extremely attractive rates are going to increase, reducing revenue, margin and freedom of action for franchised dealers.  It will not stop the advance of the independents, but it will increase the intensity of competition around those cars that are of interest to both authorised and independent repairers.  Aftersales managed by third parties rather than the driver of the car will continue to accelerate, and repairers and parts distributors will need to adapt and respond.