Monday, November 17, 2014

Hey, Maybe Being Good Is Great
by David P. Carlisle

We have been measuring parts manager satisfaction for about a decade now. We do it on a global basis for some OEMs, and pretty much have the entire North American auto market covered. In other words, our measurements represent nearly all automotive OEMs. Lately, the leader in U.S. overall parts manager satisfaction has been an Asian OEM that is noted for blistering excellence. Our satisfaction survey is not a public beauty contest, so we cannot share the names with you. But, we can share insights. And a fundamental, driving question:

So what?

Or, what’s so good about being a satisfaction leader?

The same OEM that is the perennial leader in U.S. parts manager satisfaction not only leads in overall satisfaction, but leads in many individual categories of parts manager satisfaction: order processing system, collision wholesale, parts availability, accessories.

And pricing satisfaction.

Most folks familiar with parts pricing find it intriguing and, at the same time, baffling. How do you effectively price 150,000 parts? How do you know whether you are too high or too low? How can you effectively measure pricing elasticity? (OK, you can’t.) How do you price to “competitive levels” when most of your parts are somewhat captive? See, these questions are both intriguing and baffling.

To be an effective parts pricer, you must listen to the market. This goes beyond the math and science – you listen to dealers. If they complain a lot, relative to the competition, you’ve got a problem. If they do not, you might have an opportunity.

The parts manager survey reflects the market. It is nothing more than a listening device. So, what are the dealers telling this best-in-class OEM? Up and down the line, dealers are saying that they are doing well. They might be saying (probably are saying) that, given how well things are going, “We are pretty happy with your parts pricing.”

Let’s consider parts sales for a big auto OEM – $2 billion in sales each year is pretty close to the median for these companies. Let’s assume that annual CPI parts pricing fetches you 3-4% of added sales; call it 3.5%. Next, let’s make a safe assumption that being number one in parts manager satisfaction will allow you to get 4.5% instead of the typical 3.5%. This is a very safe assumption. So, what’s the 1% worth? $20,000,000 annually. Twenty million. Twenty million that can be partially invested in processes and programs that will make life for dealers better. Like improvements to your order processing system, improved collision wholesale, higher parts availability, and more effective accessories.

Bottom Line: Parts manager satisfaction is not a beauty contest. It is the market speaking to us all. It is the market speaking to you. If you listen, you might find that it’s worth it.

Monday, November 10, 2014

Luxury Owners Don’t Want To Pay For The Palace
by Benedict Ko

We recently hosted a focus group with luxury vehicle owners who told us about their service experiences at both dealer and non-dealer service locations. What we learned about luxury owners and their decision-making process was surprising.

When I think of luxury owners, I think of people who are willing to pay more. They are willing and able to buy a first class seat, even though an economy seat performs the same function. They buy a name brand suit, when a no-name suit might look just as good. And, they are willing to pay for the luxury and comfort of a BMW or Mercedes-Benz, when a non-luxury car will perform the same functions for a lot less money. So, you’d think that when it comes to repairing that luxury vehicle, they’d also be willing to spend more right?

The answer: not exactly. Through our focus group, we discovered that luxury owners can be just as price sensitive as non-luxury owners when it comes to maintenance and repairs. In particular, the luxury owners we spoke with are sensitive to the perception of higher cost, regardless of the added comfort and convenience associated with it.

“…service advisors, managers, fancy this [and that]; you don’t think you’re gonna pay for it?

This luxury vehicle owner says what many of us are thinking when we enter a luxurious looking place: “This is going to be expensive!” He suggests that the independent shop will be cheaper because the overhead should be lower without all the “fancy”.

Being viewed as the more expensive option is a difficult issue to combat for dealers and the OEM. Customers are paying for higher quality parts and service from a dealer. However, dealers, especially luxury dealers, should be aware that communicating high quality service and products to the consumer can sometimes be overdone and cross the threshold into excess. Consumers, luxury or not, are price sensitive enough to shy away from spending their hard earned money on excess. At the end of the day, luxury and non-luxury vehicle owners are looking for value. Relative to the competition, they want to get what they pay for, and not all the “fancy”. Focusing on providing value through better service processes and pricing are keys to capturing market share. Luxury owners are not any more interested in paying extra for the palace than anyone else.

The Bottom Line: Perception matters. Too much “fancy” at dealerships can drive customers to the aftermarket, in luxury and non-luxury segments. Focusing on the value proposition, including price and service, can win back these customers. Excess glitter and glam might just drive them away.

Tuesday, November 4, 2014

A Look Across the Ocean – Tailored Service Offerings Are On the Rise In Europe
by Michael Lohfink

It's no secret that the automotive service business is extremely attractive for OEMs, authorized dealers, and independent service providers. In 2013, the total European Aftermarket was around EUR 196B in parts and labor (including VAT) – authorized dealers were able to capture roughly EUR 78B of that pie (Datamonitor).

Service is of crucial importance for the customer’s overall brand experience and is an important driver of customer satisfaction. Over time, service involves numerous vital customer touch points, each of which represents an opportunity for OEMs to earn the loyalty of their customers. This is when customers decide to return to the dealership for their next service or for the purchase of their next car – or not. Our recent consumer sentiment survey shows that a customer who is very satisfied with the service s/he received is 66% more likely to return to the dealership for service than a customer who had a neutral service experience. Likewise, a customer who is very satisfied with the service s/he received is 36% more likely to purchase a vehicle from the same brand than a customer who had a neutral service experience. (2014 Carlisle Consumer Sentiment Survey).

Over the last couple decades, OEMs have constantly expanded and differentiated their sales channels for new vehicles to reach ever-shrinking target groups. They’ve introduced new vehicle classes and unlocked new customer groups. This is where service has a lot of catching up to do. So far, most OEMs have tended to lump all service customers together. That is, if a customer buys a premium car for more than EUR 75,000, it is likely that s/he receives the same service as a customer who buys an economy car for EUR 15,000. Service customer touch points offer valuable opportunities for an OEM to identify individual needs and develop offerings tailored to meet those needs. The goal is to boost those customers’ satisfaction and maintain their loyalty.

OEMs have to understand that their customers will project the positive experience they have from buying a new vehicle onto Aftersales. The individual support that they received when they bought their car is what they will demand later on when they need their car serviced. And here, OEMs have to meet the expectations of numerous small target groups if they wish to increase service satisfaction and keep the customers over the long term.

Discussions during this year’s European Parts Benchmark Senior Executive Focus Day in Frankfurt, Germany, showed that some OEMs have realized this trend. They’ve started to react by offering services that are tailored to the distinct needs of individual customer groups. The ultimate goal for these OEMs is to provide each customer with a distinctive – and memorable – service experience.

Here are some examples of what two German Luxury OEMs are currently doing to individualize their offerings.

Mercedes Benz

The OEM’s long-term goal is to make each visit to the dealership an "individual service experience." Initial pilots have kicked off in England, Germany and the U.S. Each pilot dealership focuses on three clearly defined service formats which make it possible to easily tailor services to the particular needs of different customers:
  • Relax or Ride – Customers can wait for their vehicle at the dealership in a lounge with Wi-Fi, desktop computers, television, toys for the kids and refreshments, or they can take a shuttle service to any nearby destination.
  • Door to door – An employee of the dealership picks up the customer’s car and returns it when the work is complete.
  • Drop and Drive – Customers receive a courtesy vehicle for the time theirs is being serviced.
These options allow customers to tailor their own service experience to satisfy their own needs depending on the level of convenience they prefer or their budget.


Aside from segmenting its customer base by vehicle age, the German Luxury OEM has already launched initiatives to address the preferences of different customer groups. One example is the "BMW Excellence Club" that is exclusively offered in Germany. Here, only customers buying a BMW 7 Series sedan can become members of this club. Those members benefit from premium driver training, special sporting and cultural events, and exclusive offers. For example, upon request, BMW offers a service appointment guarantee within 48 hours, which is not available to drivers of other BMW models.

What’s more, BMW recently introduced “Service while you fly” from select airports in the UK. Here’s how it works:
  • A service customer leaves their car in the designated VIP parking area and checks-in with a concierge.
  • While they are away on vacation or a business trip, their vehicle will be serviced at the local dealership and will be ready for them when they return.
  • Bookings can be done online or over the phone, and payment authorization is managed electronically. This reduces customers’ waiting times and increases convenience.
These are only a few ways OEMs are trying to “spruce up” the good, old, service world by offering services that are specifically designed to appeal to individual target groups. And even though no official results have been reported yet, chances are that these programs will positively affect service satisfaction, ultimately increasing service retention and overall profits.

Bottom line

To succeed in the Aftermarket, OEMs must carefully listen to their customers, and give them the goods and services they really want. This goal must be clear from beginning to end – from the way the strategy is designed, to the services offered, and how dealers communicate with customers. Micro-marketing services tailored to each individual customer would be the ideal solution. If done correctly, attractive service offers that are feasible and profitable for OEMs will increase both service satisfaction and service retention.

Sunday, October 26, 2014

The New New-Car Buyer We Never Knew
by Michael Sachs

There was a time, not so long ago, when there were two types of car buyers – new-car buyers and used-car buyers, and rarely would the twain meet. However, last month IHS Automotive announced that through the first half of this year, consumers who owned a vehicle that was purchased used were responsible for nearly half of the new vehicles registered to individuals. The report went on to say that nearly 30 percent of those consumers purchased a new vehicle of the same brand as their used car or truck. By comparison, about 50 percent of new-car owners buy the same brand they already have.

I have two theories about why we’re seeing people in the showroom who traditionally buy used cars. Both are temporary phenomena.
  1. The latest safety and entertainment technology in new cars is so compelling that it is drawing interest away from used cars, which lack these latest features.
  2. Banks have loosened their lending standards (and lengthened loan durations) so much that people who were previously ineligible (and could only afford used car prices) can now qualify to buy new.
Regardless of which theory you buy into, the fact is neither one will last forever. Technology we’re seeing in new cars today, like lane departure warning systems and blind spot detection, is truly revolutionary. However, such features will eventually become standard equipment and future enhancements will be more evolutionary than revolutionary (think iPad). If it’s the loose money theory that you believe, then you probably also realize that lending to those whose credit worthiness is low eventually ends when default rates reach intolerable levels. So, we have second owners buying new cars and we think this is a temporary phenomenon. What does this mean for the OEMs? It means that there is a window of opportunity to capture the loyalty of car owners who we would otherwise never see in the dealership, either for car purchases or service.

At our North America Service Benchmark (NASB) meeting later this month, we will be talking about ways to increase retention of second-owner vehicles. Second owners are notorious for getting their cars serviced outside of the dealer channel. In fact, we know from our Consumer Sentiment Survey that first owners are 50% more likely to go to the dealer for service than second owners. Without an initial touch point with the dealer, there is no opportunity to expose second owners to what the dealer service department has to offer. Furthermore, because many used car transactions take place without a new-car dealer involved, second owners are very difficult to reach with messages about, or special offers for, dealer service.

Now, second owners are coming to the dealership to buy new cars. This means that we can finally engage with them, introduce them to dealer service, and stay connected with them throughout the ownership lifecycle. We have a good shot at getting these new customers to come back to the dealer for service, at least initially. The key to making this a long-lasting relationship is meeting (or preferably exceeding) their expectations. From previous blog posts concerning our Consumer Sentiment Survey, we already know what’s important to these customers. If we want to see these customers in the dealership for service more than once, then we need to deliver on their expectations. Keep in mind their expectations aren’t necessarily the same as those of new-car buyers we’re used to seeing. As such, they may need to be treated differently.

Bottom Line: The expanding population of new-car buyers has profound implications for service retention and brand loyalty. You are now seeing a new group of customers in the dealership buying new cars that you, as an OEM or dealer, previously never really had a shot at. This is a unique opportunity. Take advantage of it and convert your new new-car buyers into life-long customers.

Friday, October 17, 2014

How to Serve Heavy Truck Independent Repair Facilities
by Stephanie Karaa

Many heavy truck OEM parts are sold through the dealer service lane, but Independent Repair Facilities (IRFs) generate a considerable share of sales as well. In fact, approximately 21% of dealer parts sales are made to IRFs. OEMs have a dual task of competing with IRFs for service customers, but also enticing them to be customers themselves when it comes to selling genuine parts. While the competition for service customers is important, so too is ensuring that dealers continue to make money selling parts when customers prefer to visit the IRF for service. In an effort to identify how dealers can better capture IRFs’ parts business, Carlisle conducted focus groups with heavy truck IRF owners and managers.

The heavy truck repair market for OEM parts consists of vehicle operators (63%), dealer service departments (~16%), and IRFs (~21%). Examining heavy truck IRFs specifically, our three focus groups targeted owners and managers in Boston, Chicago, and Los Angeles. Most participants worked on class 7-8 trucks, but also did some work on lighter trucks and passenger cars. We learned that when it comes to sourcing parts, participants are very willing to go to the dealer. Yet, despite this willingness, they don’t always do so.

So What Are Dealers Doing Now?

Pricing: Pricing is certainly important, but the last dollar does not determine parts sourcing for IRFs. So, if pricing is relatively competitive, other areas drive purchasing decisions.
  • The Good:
    • Participants said dealer part pricing has become significantly more competitive.
    • Due to the quality, fit, and finish of OEM parts, end-customers view pricing as fair and justifiable in the aftermarket.
Convenience: If pricing passes a reasonableness test, IRFs then focus on speed and responsiveness as part of the value proposition, and their parts sourcing must support this. Essentially, the time IRF managers spend identifying and finding parts over the phone is precious time spent away from repairs and customers.
  • The Good:
    • Dealer parts availability is generally deemed acceptable.
  • The Bad:
    • Delivery standards fall short of the rest of the aftermarket, which delivers more frequently at set times.
    • Hold wait times can be excessive when calling dealers.
Knowledge: As repairs grow more complex, access to technical information becomes essential.
  • The Bad:
    • Dealer parts staff lack expertise, and overall phone handling skills are inefficient. When IRFs finally reach a dealer staff member, the individual lacks technical knowledge or seems unwilling to pass along the information due to competition in the service lane.
    • Dealer technology and technical information lags the aftermarket, which provides online and eCommerce tools.
So What Must the OEM Dealer Network Do?

Showing IRFs you value their business goes a long way! It only takes a few negative experiences for an IRF to discontinue sourcing from a dealer. IRFs are turned off when they perceive dealership staff as indifferent and will quickly tell others not to bother wasting their time at a location. Therefore, it’s even more critical to address these key issues to maintain parts purchase loyalty from the first interaction.

We’ve boiled our recommendations down to a few key actionable changes to provide faster, higher quality service.

Short-term steps:
  1. Define phone handling standards: Do not allow calls to go unanswered and avoid excessive hold times.
  2. Provide phone handling training that is practically oriented towards day-to-day customer requests and systems training that enables quick parts identification and access to technical information.
  3. Gear customer service training to support basic technical knowledge, and assign knowledgeable staff members to manage the complex repair questions.
  4. Create an evaluation process, including mystery shops, for counter staff’s performance.
Long-term steps:
  1. Invest in technology that allows staff to look up parts by VIN, provide cross-referencing, and show inventory availability to speed up call times.
  2. Consider creating a per-minute/per-use technical support hotline – IRFs are willing to pay for this!
  3. Move towards daily delivery in specific time windows to IRFs in major metro areas.
Bottom Line: The heavy truck IRF business is particularly quick-paced and value-oriented, focusing heavily on access to technical information. Understanding these parts purchasing needs and current purchase practices is critical to successfully competing for their parts business.

Friday, October 10, 2014

Vendor Shipped Direct: Not Always Direct
by Charlotte Tang

Like most millennials, I order a lot of stuff online. Amazon Prime makes it a weekly, if not daily, occurrence. And, as someone who recently got married, I’ve had lots of wedding gifts delivered over the last few months. With all these shipments sometimes deliveries don’t go as planned. Maybe you’ve had a similar experience—but, for sure, you don’t want this to happen to your customers.

One of our wedding gifts was a gift card to a store that sells kitchen and home items. I placed an order for three items: a honey pot for the 5 lb. tub of honey we received from a guest’s apiary; a Silpat, which is a non-stick baking mat for lining cookie sheets; and a kitchen floor mat that prevents fatigue from standing. The first two items were shipping from the company we purchased them from, but the kitchen mat was marked as “Vendor Shipped”, which I’m familiar with from collecting vendorshipped-direct data through our Parts Benchmarks each year. What happened next was a comedy of errors.

I placed the order on a Monday evening. The website said standard shipping takes 7-10 business days, but the floor mat would take 10-14 days for delivery. The floor mat shows up after about a week and a half. I hadn’t received a shipment confirmation, so that was a surprise. I get it out and lay it on the kitchen floor. It’s the wrong size (longer than the one I ordered), color (lighter than the one I ordered), and pattern (basket-weave instead of cobblestone). Oh well, it fits and I don’t feel like making a fuss.

A few days later I get a message from UPS (through MyChoice) that I have a delivery scheduled. I come home from work on a Friday and find only a return shipping label stuck to the front door listing “floor mat return” in the memo field. Huh? I guess they want me to send back the one that was wrong. I wonder why no one called to ask me to do that. We put it outside on Monday, but no one comes to take it. Finally, on Wednesday it’s picked up, and the correct mat is dropped off.
Side note: I checked the tracking info on the returned floor mat, and it took several extra days to get delivered due to multiple “recipient has moved, trying to locate new address” errors. What is wrong with this vendor?
The other items in the order had gone missing, despite being reported delivered. The store replaced those items, and we received that package without issue. Then, soon after, another floor mat shows up. It’s been over three weeks since the initial order now. Hmmm, okay, what do we do with this extra one? Can we keep it? Should we return it? I contact the store again. They tell me:
That duplicate was ordered for you as a result of a lost package claim. That claim is closed now, so we would like you to keep that duplicate mat. You were not charged for it, so if you cannot use it please feel free to give it away or donate it to a local food bank or charity of your choice.
I guess no one noted in their records that only the first two items went missing, but not the third?
Side note: I checked the order status again when writing this. The order was placed in July, and the website still says it’s processing. I never received a shipment confirmation for any of the packages. Maybe a 3rd round will show up someday?
I’ve always heard that dealers were less satisfied with vendor ship-direct (VSD) orders than those fulfilled directly by the OEM. This was my first (known) VSD order, and I have to say, I agree with them. Your customers will judge you on the entire order and delivery experience, and if your vendors are not up to par, it reflects poorly on the whole experience. They say all’s well that ends well, but I’m going to stick with in-store purchases from this store in the future.

Bottom Line: What do your delivery policies say about you? Do you resolve issues quickly and without undue hassle for the customers? Do your vendors live up to your delivery standards?

Sunday, September 28, 2014

Car-Share and Ride-Share Companies are Blending the Lines of Public and Private Transportation
by Joy Sun

Here’s something to think about: in early June, Uber—the venture-capital-funded, on-demand car ride service—set a record valuation of $17 billion, which makes this “start-up” worth more than half of the companies listed in the S&P 500. The month before, Uber was integrated into Google Maps. And now, in addition to mapping your travel based on whether you are walking, biking, driving, or taking the bus, Google Maps also offers the option of getting there via an Uber car.

Uber is a four-year-old start-up and success story that is scaling quickly (currently, Uber is up and running in 130 cities worldwide) and here to stay. So what does it mean for automotive OEMs when its founder and CEO envisions the company making “car ownership a thing of the past”, replaced by ubiquitous “car access,” but limited private ownership?

Uber is simply one manifestation of the rise of the shared economy, in which assets that used to be 100% owned and 99% idle (think of your empty guestroom or your commuter car between 9 a.m. and 5 p.m.) are becoming more productive as they are utilized by more people. The shared economy has been unleashed by the internet and smartphones, which have enabled peer-to-peer connections in real time. Whereas your guestroom used to sit idle, now it can be easily rented to vacationers on Airbnb and used to generate value.

Transportation is a sector disproportionally affected by the rise of the shared economy, because sharing transportation has historically been commonplace. Public transportation has always allowed people traveling in the same direction to use the same vehicle for a small fee. However, unless a city has invested in a comprehensive infrastructure, public transportation can rarely match the flexibility and convenience of private transportation.

In contrast to yesterday’s dichotomy between private and public transportation, today’s technology enables a slew of travel options varying on a spectrum of convenience and cost. On one side of the spectrum is your fixed-route traditional public transportation that is low cost and inflexible to your personal needs. On the other side of the spectrum, we are seeing higher cost transportation options that rival the convenience of private ownership. I’ll call these options “shared personal transportation,” and they include Uber, which offers to any urban dweller the convenience of being chauffeured, and Zipcar, which gives users access to a neighborhood car for extended hours.

Shared personal transportation makes the experience of private car ownership available on a pay-per-use basis, which allows for a greater level of price sensitivity and flexibility for consumers. According to Kelly Blue Book, a recognized consumer guide for new and used vehicle price estimation, the annual cost of ownership (including fuel, insurance, financing, maintenance, repairs, and depreciation) for a new 2014 subcompact vehicle amounts to ~$530/month; the equivalent of traveling 441 miles in a chauffeured Uber every month (after the base rate, the travel fare is $1.20/mile in Boston)! In the meantime, ride-share companies are continuing to push down the prices of their services. This is, in part, because they are engaged in pricing wars with each other. It’s also, in part, because they are launching even lower price alternatives, such as real-time carpooling that allows strangers traveling in the same route to share rides and split the fare.

Automotive brands don’t just compete against one another for vehicle sales, they also compete within a greater context of private vs. public transportation, and now those options are being supplemented by a slew of flexible shared transportation options. Shared personal transportation complements public transportation, and, if combining the two can mean lower costs than private car ownership, with the option of flexibility when you need it, then who will be the car owners of the future (at least in urban areas)?

What does the shared economy mean for automotive manufacturers? What does “no car ownership, but full car access” mean for automotive aftersales? How do companies like Uber, Lyft, and SideCar, which contract with large numbers of part-time drivers, influence their service and repair habits? These are questions that will be explored in part II of this blog, but in the meantime, I speculate that it might bear a resemblance to fleet operations (to be investigated in a future blog post).

Bottom Line:In the context of the shared economy, on-demand ride-sharing and car-sharing companies like Uber and ZipCar are enabling more people to have the convenience of automotive access on a pay-per-use basis, without the responsibilities and costs of automotive ownership. The ramifications of these new transportation entrants on car ownership and aftersales behavior are not yet clear and are worth investigating.