This guest blog was written by Ted Fellowes, President of Fellowes Research. It is the third of three posts that prepares the reader for webinar hosted by Mize titled Parts eCommerce & Megatrend Impacts on Aftermarket Parts Sales in which Ted is the guest presenter
Megatrends are shifts in behavior or attitude that are large, transformative, global and cross-industry in impact. The megatrends discussed below appear pivotal to shaping parts and service operations for vehicles and equipment. The digital solutions that automate and improve service-parts management (SPM solutions) will be vital to OEMs, dealers and repairers as they forge at path to success through the tumult.
This post focuses on forecasting impacts, not on exact timing and sizing.
The line between physical and digital commerce is blurring on the margins but the shift in share to eCommerce remains strong.
Digital Commerce – from pre-sale digital communications and marketing to online selling (eProcurement to buyers) to digital aftersales communications – continues relentlessly expanding. For parts and service, the impact will be: increasing online service scheduling, service/diagnostics information access and parts ordering, – as well as digital processes for inspections, repair approval, warranty coverage and status updates. Fixed Operations will continue its digital transformation.
Digital commerce favors ‘marketplaces’ – such as Amazon & eBay. There is much talk and press suggesting Amazon will dominate all markets. The sweet spot for marketplaces is retail (not wholesale) and for small to mid-sized items not susceptible to damage in shipment and deliverable at reasonable cost in two or three days to a week. The vast majority of parts ordered for repairs are needed same-day or next-morning, are relatively low volume, or are bulky or may be easily damaged – not ideal for marketplaces. Additionally, marketplaces often impose relatively high transaction costs – a challenge for wholesale trade with its pattern of low margins.
Digital commerce increases price transparency and buyers’ focus on prices. In automotive repair, the common practice is to charge vehicle/equipment owners MSRP for parts, pocketing wholesale discounts of 20 to 35% – accounting for 40% or more of repairers’ gross margins. Digital commerce may drive changes service price presentment best practices (rather than impacting net repair prices).
‘Connected Car’ feels new but emerged in the 90s with GM’s OnStar. A connected vehicle can communicate bidirectionally with other systems – including via cellular transmission to the Internet and wirelessly directly to other vehicles. Earlier, we covered its safety-enhancing capabilities in the “Collision Avoidance” section (above).
It is useful to think of ‘Connected Car’ as the ‘Internet of Things (IoT) – for motor vehicles. Vehicle owners will first think of entertainment systems, but vehicle health and maintenance impacts are the big news – and our focus. I wrote a few years ago in FixedOps Magazine about connected cars messaging an automaker from a transport ship approaching California – reporting needed service and separately about vehicles sending diagnostic information to OEM and dealer SPM solutions which resulted in calls to the vehicle drivers to schedule service appointments with authorized dealers (whose EPCs identified parts likely to be needed – so that they’d be available when the vehicle pulled into the dealer’s service drive).
Nothing has a greater potential to change fixed operations. Connected vehicle technologies enable just-in-time opportunities to promote dealer service appointments and diagnose faults to speed repair and improve service part supply – in the immediate term. In the longer term, it will facilitate predictive analytics to aid dealer service technicians trouble-shooting problems and OEM engineers to anticipate needed part redesigns earlier (even aiding new vehicle design).
Connected car also advances UBI (usage-based insurance) – but that’s another story.
R2R (Right-to-Repair) regulations and legislation are expanding – further opening maintenance and repair options of vehicle/equipment owners – also aiding independent service providers (ISPs). As the share of repairs claimed by ISPs climbs, OEMs and their dealer networks can maximize the portion of the replacement parts business they retain by optimizing the CX (customer experience) of parts buyers – and this is best done via parts eCommerce solutions. OEMs and dealers will find that they are best served by industry-wide solutions on the buy-side and solution ‘suites’ covering a wide range of SPM and related solutions on the sell-side.
No discussion of megatrends would be complete without addressing the ‘sharing economy’ – from Lyft and Uber to Airbnb and beyond. For example, even if fewer cars are purchased, total mileage across vehicles will likely be little-changed. Shared cars will have higher maintenance and greater need to return to operation quickly. The increased concentration of ownership may impact competition for vehicle/equipment service business, but may not significantly impact the total consumption of parts and repair services. More intense use of fewer vehicles could impact OEM warranty claims or terms – which in turn may lead to more sophisticated warranty-related solutions.
Local 3D printing of service-parts – setting aside unresolved legal (IP) issues – could radically reshape the economics of vehicle/equipment repair. But financial justification limits the impact of 3D printing to parts that are high-value (to cover the labor, materials and capital), low volume (high-volume manufacturing drives down low per-item costs), needed urgently (high costs for availability/delivery) and which will have the same reliability and safety attributes as the original manufactured part. The minor impact to date will expand slowly and selectively over time.
The days of Henry Ford’s “any color as long as it’s black” are long over. Increasingly vehicles and equipment are offered with ever-more variants and options – adding complexity to servicing vehicles and equipment. From an SPM solutions perspective, parts catalog authoring, EPCs, parts eCommerce, service menus and warranty solutions will need to better reflect vehicle/equipment ‘build’ data. Accurate parts fitment will be crucial to CX in a world of mass customization.
The design of products and their constituent parts continuously improves. Durability and predictive fault-detection grows with advances in AI and machine-learning. Vehicles and equipment are experiencing fewer parts failures accompanied by increasing customer expectations. An acceleration in this trend – which will create a slow drag on the volume of replacement parts demanded – is likely.
Electrification (primarily automotive)
The phasing out of internal combustion engines (ICE) will have an enormous impact on the maintenance and repair of vehicles and equipment – with service labor and replacement parts dropping – eventually – by half (excluding collision repair, covered separately below). But, the maintenance needs and repair requirements for hybrid electric vehicles (HEVs and PHEVs) are similar to those of ICE vehicles – it is only all-electric vehicles (EVs) also called battery electric vehicles (BEVs), that result in substantially reduced aftersales services – excluding battery replacements.
The EV-driven transition to reduced parts and service may be glacial. The average age of passenger vehicles on the road in the U.S. is at an all-time high of nearly 12 years. Nearly 1% of UIO (units in operation) are EV (that is, electric only) and EV sales in 2020 are expected to be only 2% of U.S. passenger vehicle sales. Even with exponential EV sales growth and the not-certain fading away of hybrids, decades will pass before the bulk of passenger UIO becomes electric-only (and thus, low maintenance and repair). It may take longer for commercial trucks and much longer for off-road vehicles and equipment (except where ICE is a disadvantage such as in mining). Said differently, growth in all-electric powertrains will further flatten growth of parts and service revenues.
Collision Avoidance (exclusively automotive)
The megatrend of collision avoidance technologies, like electrification, holds the promise and challenge of greatly reducing repair-driven service and parts – gradually over an extended time – but only almost exclusively for automotive.
Together autonomous vehicle and connected car technologies hold the promise of reducing collisions occurrence and severity by 90%. Risk compensation – that is, the tendency for people to adjust their behavior in response to perceived risk levels, becoming less careful as they feel more protected – may slow or limit these projected gains – which in turn will delay or mitigate the drop in parts and service related to collision repair.
Megatrends are changing the parts and service business for OEMs, their dealers and repairers – influencing who wins and who loses. Even if replacement parts volumes were to decline due to these trends, replacement parts will remain a huge business critical to OEMs’ financial and customer-satisfaction successes. None of the megatrends reduces the value of digital SPM solutions or the drivers for further innovation and improvements in SPM. These megatrends appear to favor multi-OEM solutions as well as solution sets covering a range of SPM applications.
Learn more about Parts eCommerce Best Practices with a Webinar hosted by Mize
Mize is hosting a Webinar with Ted Fellows, from Fellowes Research on February 25th, 2020 at 1 PM EST/12 PM CST.