COVID-19: how is the German aftermarket coping?

In order to slow down the spread of the COVID-19 virus in Germany, several legislative actions have been put in place since 23rd March that have had a direct impact on the German economy and public life.  Only 'essential service' shops are open; all others have had to close their business; this includes car dealers, but not workshops.  There is also a contact restriction of more than two people, with the police watching over this very closely.  All of this will have significant consequences for the car service and repair market in Germany.

The aftermarket in Germany is in a precarious position

Let us begin with the car driver.  By restricting personal contacts and giving instructions to work from home if possible, the government measures are reducing overall traffic and congestion levels.  But individuals’ willingness to travel, if it is not absolutely necessary, has also decreased, and whenever possible, we are all staying at home.  This also applies to getting repair and maintenance work done on cars.  Workshop appointments for maintenance, tyre changes or simple repairs have been cancelled or postponed, either because the workshop has closed, or because the car is still running, or simply because this kind of expenditure is not considered important at the moment.  Drivers are also no longer under pressure to take their car for its periodic condition inspection (MoT), as the Federal Ministry of Transport has extended validity by up to four months.

This is all adding up to a critical situation at car dealers and OEM-franchised workshops.  Already 70% of car dealers are claiming short-time work compensation, 90% of which is to cover dealership employees including sales staff, and 70% for workshop employees.  OEMs are communicating that maintenance and repair for fleet vehicles is still available, especially for ‘essential service’ vehicles (ambulances, fire engines, etc), but this does not amount to viable workshop capacity utilisation for operators.  The German dealer and workshop association ZDK estimates that 15% of all repair and maintenance workshops will close temporarily (see LINK 1 and LINK 2 ).

In the independent aftermarket sector, workshop chain ATU was one of the first companies to announce the closure of its 600 branches across the country, with the protection against virus infection of employees and customers being given as the reason (see LINK ).  But it can also be assumed that low capacity utilisation and the closure of their accessory shop also played a part in this drastic decision.

So far, ‘pure’ workshops and especially independent repairers have not bee affected as seriously as the players mentioned above (see LINK 1 and LINK 2), as they tend to offer multi-brand services and a range of different repair ‘specialisations’, and are more able to compensate for the lack of maintenance and tyre change work with different and/or more time-consuming repairs.  However, this situation will depend on each individual business.

In particular, workshops that focus mainly on tyre changes and ‘simple’ wear and tear parts fitting are now struggling to achieve an adequate workload/utilization, because drivers have deferred or such jobs; auto-centres, tyre chains and fast-fit businesses are the hardest hit.  However, this is also partly true for OEM-franchised repairers as well, because they are often specialised on one or a few brands in the younger car parc that are not at the stage of their life of needing much repair.  ‘True’ independent repairers tend to have a more balanced work portfolio, and so have not been so heavily impacted, at least so far …

When might things return to normal?

Even with short-time work compensation and other forms of financial support from the government, it will be difficult to get back to normal after the crisis.  Many small repairers do not have the financial security they will need if the crisis persists over a long period.

Even if the COVID-19 crisis ‘ceases’ at a certain point, many consumers will be left with a legacy of extreme financial hardship.  Those who either lost their jobs or who received short-time work compensation will take time to recover financially, and in the weakened economy, many jobs will remain at risk for some time.  As a result, even after the virus recedes, not all customers will return to workshops for maintenance work, tyre changes or repairs immediately (unless absolutely necessary), and some may not return at all.  Some repairers will not be able to live with an enduring lack of workshop ‘entries’, and may be forced to lay off staff, or even to close completely.  We therefore expect the overall recovery in the aftermarket to be a slow one.

In the medium term, we expect the independent sector to gain market share

Sooner or later, drivers will need to catch up on all the missed maintenance, repairs, tyre changes.  But, in order to save money, the chances are that this work will more likely be carried out independent repairers than in OEM-franchised workshops, unless the latter are able to come up with value-for money offers to generate ‘post-crisis retention’.

The overall economic impact of the crisis is currently difficult to estimate, but economists expect there to be a recession, which of course will have an impact on new car sales as well.  This will mean that the current car parc will remain in circulation for a longer time, and the average vehicle age will increase.  Owners of older vehicles are traditionally much more likely to use independent workshops, and we expect this to continue, at least for many of the cars currently on the road, and so the independent aftermarket will gain market share in the short to medium term.

One hope for the whole sector, and particularly for dealers and OEM-franchised workshops would be if the German government were to re-introduce a ‘scrappage premium’ scheme to boost new car sales, and consequently the repair and maintenance demand amongst younger cars.  However, we do not rate the chances of this happening as high, given how many other sectors will be even more deeply affected by the current crisis, and will need to turn to the government for support.

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