Retailers must develop new business models to thrive in the age of electrification, ICDP MD Steve Young has said.
“For many years, the aftersales department has provided a major part of dealer profits in many markets,” he added.
“The traditional target used to be that the full overhead of the dealership would be covered by aftersales. However, at a time when margins on new cars are under pressure through electrification and moves by some manufacturers towards agency agreements rather than franchise, many dealers are focusing on aftersales as the way in which they can maintain their overall profitability. Whilst we would totally agree that this is a sensible route to follow, there are other pressures which mean that the outcome is far from assured in the long term.”
In AutoFocus, Cox Automotive’s quarterly insight update, ICDP highlighted how the total aftermarket has been in decline in real terms for at least a decade, influenced by reducing distance driven, greater car reliability, longer service intervals, reduced service content and lower collision rates due to more sophisticated safety systems. Value has been less affected because of higher parts prices and labour rate inflation.
In combination with higher dealership fixed costs, typical overhead absorption rates have dropped down to the 50-60% level in major markets.
Young added: “This decline has now been accelerated by electrification, where not only are many service operations no longer required, but the real profit generator – the oil change – has gone completely. Tyres are the only repair type that grows due to higher wear rates on BEVs.”
ICDP has advised that the impact is generally modest currently because, other than in markets like Norway, BEV penetration is still relatively low, and franchised dealers are still working mainly on ICE or hybrid products.
Independent repairers are further protected by the fact that they tend to work on older cars, so the BEV mix within their workshops is even lower. However, as the mix within the parc increases, the reduced workload and profit from repair and maintenance will greatly impact dealers’ profitability, it said.
Unless there were corrective actions such as higher labour rates, then the dealer as a whole would not be viable at a 100% BEV mix, ICDP said.
Philip Nothard, Insight and Strategy Director at Cox Automotive, added: “We value ICDP’s contribution to our market analysis and commentary and share their view the aftermarket faces a period of change. However, it’s not necessarily a doom and gloom scenario. The direction of travel is clear, and there is time to pivot, innovate and consolidate to counter the shifting dynamic. Just as vehicle retailers had to adapt and evolve during the pandemic, aftermarket departments will also have to show innovation if they are to profit from the EV age. Indeed, many are already embracing new business models, such as mobile repair and on-the-drive servicing.”