Aftermarket scenario planning

Barnaby looks at the various trends influencing the development of the sector and asks what they might tell us about our future

By Barnaby Donohew | Published:  13 December, 2017

Definition of uncertainty:
a state of having limited knowledge where it is impossible to exactly describe the existing state, a future outcome, or more than one possible outcome.

I don’t know about you but I feel battered by the tsunami of reports describing the technological and social innovations flooding the automotive industry: Alternative fuelling, autonomy, connectivity, over-the-air, vehicle-as-a-device, ride-hailing, shared-ownership, pay-as-you-drive, stores (not dealerships), etc. The list is long. All of this against a backdrop of uncertainty regarding continued access to vehicle data or servicing and repair information.

Antidote to uncertainty
The sum effect is that our future is uncertain. That breeds anxiety. So, how do we get a grip of our situation, part the on-rushing waves, and move forward in our lives and businesses?

Well, whilst we cannot predict the future, if we identify the underlying factors driving the changes within the industry, we can extrapolate emergent trends. Then, from their combined effects, we can have a good stab at predicting our possible futures. This process is known as scenario planning (each possible future is called a scenario). If we describe each scenario in sufficient detail, we can see how our business model might need to evolve to adapt to it. Clearly, the success of the process depends on identifying appropriate industry drivers. From the opening paragraph, we see that there are at least a handful of underlying factors that are driving change: technological innovation, sales centralisation, vehicle ownershipn and vehicle data access solutions. Adaptation to technological innovation is nothing new to the aftermarket, so, in itself, it is not necessarily a threat. Although we could consider all of these factors, we’ll keep it simple and examine the two drivers that could have the greatest effect; vehicle ownership and data access.

Two sides to every story
When extrapolated to their limits, each of the two drivers can suggest trends that may or may not materialise in the future for data access solutions, these are open access to data, as would be available with an internal vehicle platform, or restricted access to data, as would be controlled within an extended vehicle platform. Similarly, for vehicle ownership, there is either the continuation of the status quo or a pivot away from individual ownership.
An internal vehicle platform is the ideal vehicle data solution for the aftermarket as it allows independent workshops to continue to compete against the franchised vehicle manufacturer dealerships, by delivering value to customers that are not necessarily segmented by the manufacturers of their vehicles.

An extended vehicle platform is the ideal solution for the vehicle manufacturers. Access to the vehicle data will likely come with strings attached and the associated cost structures and conditions might limit the vehicles that an aftermarket enterprise is able or authorised to service. In the extreme case, it might be only vehicles from a single manufacturer. A concurrent trend might be that the fate of servicing and repair information is tied up with that of vehicle data, as each is of relatively low value without the other.

Extreme case
Given that vehicle utilisation is low and the cost of ownership is increasing, it is not unreasonable to assume that vehicle ownership patterns might change; in the extreme case, all vehicles might end up being provided as a service by fleet-owning enterprises.
If we systematically combine each of the two trends for each of the two drivers of change, we can build four possible scenarios for the automotive aftermarket; each quadrant within the main figure lists business model changes that might need to be considered for each scenario. The scenarios themselves are described as follows:

A. Business as usual
Free, unmonitored, and open access to vehicle data remains available to the aftermarket, albeit via a secure interface and with new communication technologies. As such, aftermarket diagnostic tools and information sources also remain available. Consumers have rejected on-demand, pay-as-you-go, ride-sharing, and shared or other forms of ownership. Changing vehicle technology remains the main driver of emergent trends and business model evolution. By and large the structure of the aftermarket will be similar to that of today; however, there will be a continual culling of the smallest enterprises, as cost structures relentlessly increase, thereby continuously raising the threshold at which a minimum economy of scale can sustain them.

B. Authorised repairer
Vehicle manufacturers have locked down access to vehicle data. Now, a workshop’s business systems, processes and standards are expected to meet those specified by a vehicle manufacturer. The required investment in key assets and the ongoing cost structures will necessitate a shift to a vehicle-manufacturer-authorised service model. With the vehicle manufacturer’s ongoing rationalisation of dealerships, vehicle sales centralisation, and costs of constructing its own service network, a network of authorised workshops allows them to greatly increase their service capacity whilst simultaneously extending their control of valuable vehicle-related data. The model further helps the vehicle manufacturers to gain a larger market share of the parts supply chain.

C. General fleet maintenance
The increased costs of vehicle ownership relative to their combined utility and social value has reached a tipping point, after which consumers embraced ride-hailing, shared ownership, or pay-as-you-drive services. Vehicles now represent the key assets within the business models of fleet-owning enterprises. Many of these enterprises will seek to form key partnerships with fleet maintenance contractors to outsource their fleet maintenance activities, whereas others will bring the maintenance activities in-house. Open access to vehicle data ensures that independent enterprises are able to compete with both the in-house providers and the vehicle manufacturers for maintenance contracts. Opportunities will exist for these independent enterprises to scale; however, like the vehicle manufacturers, growth will bring increased cost structures, such as those associated with the recruitment and retention of talent. A healthy, but consolidated, aftermarket parts supply chain will exist to service the maintenance activities.

D. Authorised fleet maintenance
With the extended vehicle platform and the collapse of individual ownership, vehicle manufacturers gain tight control of vehicle data and fleet maintenance contracts (including the parts supply chain). Truly independent workshops are rare and serve only those with niche (e.g. classic) vehicles. After a period of consolidation, the fleet maintenance industry is reduced to a handful of enterprises each directly serving one or more vehicle manufacturers. Scandal after scandal ensues as the non-existent market forces and ineffectual regulatory frameworks see maintenance standards plummet. The government is powerless to challenge the might of the vehicle manufacturers, whom have become indistinguishable from the omnipotent tech oligarchy running the planet…
Okay, maybe the last scenario has taken it a step too far but, hopefully, you get the point.

We can see that scenarios make the abstract (the future of the automotive aftermarket) tangible and, by providing specific detail, help to inform business model evolution. Note: in practice, any scenarios must be described with far more detail (including indications of timescales) and consideration than I have given here.

Hedges and bets
When evaluating each of the scenarios, we have to consider the likelihood and extent that each trend will arise. As such, scenario planning does not necessarily eliminate uncertainty, instead it helps businesses to better understand what changes they might need to make to their business models.

Within the scenarios presented above, it is possible for an independent workshop to make investment decisions that generate a win-win return across several scenarios. For example, we might feel that it is unlikely that the status quo (“A. Business as usual”) will continue and that any one of the other scenarios could be equally likely; in which case a business might hedge its bets by investing in vehicle manufacturer tools, training and service registration (including on-line diagnostics, technical information systems and security portals etc.), as well as seeking opportunities to grow fleet maintenance work. These investments can provide a return in all of the scenarios, whilst at the same time mitigating against the risks of not making the investments.

In summary, scenario planning can be a useful tool to counter the challenges faced within the rapidly changing automotive industry. Whilst it cannot eliminate uncertainty, it can certainly help an enterprise to identify worthwhile business model adaptations that will allow it to survive or thrive in the future.

Automotive Analytics
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