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Auto industry shifts to after-sale services
August 22, 2012, Wednesday
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AS China's car sales growth cools and motorists keep their cars longer, it's not surprising that the after-sales servicing market is shaping up as the next lucrative segment of the auto industry.
Sales of passenger cars and commercial vehicles have grown slower-than-expected by 3.6 percent so far this year, and no quick rebound is in sight.
Automakers and dealerships can no longer rely solely on selling new cars to make profits. On the other hand, there's money to be made taking care of the cars already on the road. Last year, China's auto maintenance and repair market generated over 600 billion yuan (US$94.2 billion) in revenue. With more than 100 million cars on the road, prospects are good that the industry could surge to the one trillion yuan mark.
Entry level
Using entry-level Corolla and Excelle sedans as examples, Ipsos finds that standard maintenance and repair for each car cost around 2,500 yuan a year. If insurance fees, parking tolls, fuel costs, crash repairs and accessories are included, that figure rises to 5,500 yuan.
The list of possible money-spinners related to car ownership stretches on: car modifications, auto rentals, car clubs, used car trading, consumer finance. The question is: Who has what it takes to make the most from this lucrative market?
At present, China's after-sales car market is dominated by four segments: dealerships, repair shops, fast-fix chain stores and roadside garage shops. Each has its advantages and drawbacks.
Dealerships, with backing from carmakers, sell authentic spare parts and have specialized equipment to inspect, maintain and repair cars. Their services are standardized and their credentials are sound, but they charge much higher fees than their competitors and sometimes work less efficiently.
By contrast, services provided by independent garages often stand out for being fast and cheap, though perhaps sometimes also sloppy and shady.
Both their spare parts and maintenance and repair work frequently lack quality assurance certification. And some unscrupulous operators may pull car insurance scams to rip off unsuspecting customers.
Weighing risks
Of course, it is up to car owners to weigh the risks and decide where to do business. That will determine which of the service segments thrives best. Trends are emerging.
First is the chain operation. In the United States, fast repair chain garages have taken over 80 percent of the auto after-sales market and more than half of its revenue.
We can expect that the surge in China's after-sales service market will attract more domestic companies and international giants operating on the chain model. That leads to faster expansion because of standardized service. But it's doubtful whether this trend can shake the dominance of dealerships in the short term.
Second is the auto club. This business model aims to provide a social platform for car owners, creating opportunities for the promotion of repair, maintenance, rescue, finance, replacement and insurance services.
Good management of club memberships can increase motorist loyalty and the chance for a club to take care of a car throughout its life cycle.
In pursuit of better services, the club may form partnerships with dealerships, repair shops, banks, insurance companies and hotels.
Third is the "vehicle telematics" based on the Internet of Things. This new human-vehicle interaction model, based on the data connectivity of driver, car, road and surroundings through wireless communications, can provide intelligent driving assistance such as GPS navigation, fuel efficiency monitoring and voice recognition to send messages and make calls. With the development of this cutting-edge technology, a new world of possibilities will open in the car after-sales services market.
Sales of passenger cars and commercial vehicles have grown slower-than-expected by 3.6 percent so far this year, and no quick rebound is in sight.
Automakers and dealerships can no longer rely solely on selling new cars to make profits. On the other hand, there's money to be made taking care of the cars already on the road. Last year, China's auto maintenance and repair market generated over 600 billion yuan (US$94.2 billion) in revenue. With more than 100 million cars on the road, prospects are good that the industry could surge to the one trillion yuan mark.
Entry level
Using entry-level Corolla and Excelle sedans as examples, Ipsos finds that standard maintenance and repair for each car cost around 2,500 yuan a year. If insurance fees, parking tolls, fuel costs, crash repairs and accessories are included, that figure rises to 5,500 yuan.
The list of possible money-spinners related to car ownership stretches on: car modifications, auto rentals, car clubs, used car trading, consumer finance. The question is: Who has what it takes to make the most from this lucrative market?
At present, China's after-sales car market is dominated by four segments: dealerships, repair shops, fast-fix chain stores and roadside garage shops. Each has its advantages and drawbacks.
Dealerships, with backing from carmakers, sell authentic spare parts and have specialized equipment to inspect, maintain and repair cars. Their services are standardized and their credentials are sound, but they charge much higher fees than their competitors and sometimes work less efficiently.
By contrast, services provided by independent garages often stand out for being fast and cheap, though perhaps sometimes also sloppy and shady.
Both their spare parts and maintenance and repair work frequently lack quality assurance certification. And some unscrupulous operators may pull car insurance scams to rip off unsuspecting customers.
Weighing risks
Of course, it is up to car owners to weigh the risks and decide where to do business. That will determine which of the service segments thrives best. Trends are emerging.
First is the chain operation. In the United States, fast repair chain garages have taken over 80 percent of the auto after-sales market and more than half of its revenue.
We can expect that the surge in China's after-sales service market will attract more domestic companies and international giants operating on the chain model. That leads to faster expansion because of standardized service. But it's doubtful whether this trend can shake the dominance of dealerships in the short term.
Second is the auto club. This business model aims to provide a social platform for car owners, creating opportunities for the promotion of repair, maintenance, rescue, finance, replacement and insurance services.
Good management of club memberships can increase motorist loyalty and the chance for a club to take care of a car throughout its life cycle.
In pursuit of better services, the club may form partnerships with dealerships, repair shops, banks, insurance companies and hotels.
Third is the "vehicle telematics" based on the Internet of Things. This new human-vehicle interaction model, based on the data connectivity of driver, car, road and surroundings through wireless communications, can provide intelligent driving assistance such as GPS navigation, fuel efficiency monitoring and voice recognition to send messages and make calls. With the development of this cutting-edge technology, a new world of possibilities will open in the car after-sales services market.
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