16 July 2013

The retail market for servicing, maintenance and repairs (SMR) has grown in real terms since the recession of 2008/2009 in part because cash-strapped motorists are keeping their cars longer, according to the latest Trend Tracker data for 2012.

Between 2008 and 2012, the retail SMR market increased by 7% in real terms to £9.4 billion (excluding MOTs and VAT), which may appear counter-intuitive given the depth of the recession.

Until the recent recession, the value of the retail SMR market – after adjusting for inflation – had been declining since 1998. The decline was fairly modest, averaging just over 2% year on year, reversing a previously increasing market.
Up to 1998, the principal market driver was the increasing size of the car parc. In the seven years up to 1998, the car parc increased by 18% – an increase not yet matched in the 14 years since 1998.

As the expansion of the car parc slowed down, improving build quality became more influential. Indeed, over the past 20 years, the massive improvements in build quality meant longer service intervals, reduced service content, and vehicle manufacturers happy to offer longer warranties (from around 1998) thus taking all but routine services and wear and tear out of the retail market during warranty.

But then the recession arrived in 2008 and the inflation-adjusted value of the retail SMR market started to increase once again. The simple explanation for this turned out to be motorists keeping their cars longer and becoming liable for work on their cars. Whereas in better times motorists would trade their cars in when problems arose, leaving dealers to pay for the work, the average length of ownership increased by over six months during the recession, meaning owners footing the bill for servicing and repairs.

Bad news

Despite the real-terms increase in the market’s value, franchised dealers’ workshops have experienced a fall in retail SMR revenue, whereas the independent sector has seen an increase. Adjusting for inflation, and including estimated income from MOT testing, Trend Tracker calculations suggest a 6.5% fall for franchised workshops, 2007 to 2012, and an increase of 13% for independents.

The fall for franchised workshops is, of course, across the sector as a whole. There have been many winners and losers, and the pain has been mitigated because a number of dealers and franchised workshops (authorised and vehicle manufacturer fast-fits) have fallen by the wayside during the recession. In other words, less business, yes – but spread between fewer players.

Retention trends

The extent to which the independent sector has benefited since the recession is summarised in our first graph. This reports the results of Trend Tracker’s long-running consumer question about ‘servicing retention’: “Where did you last get your car serviced?” The results represent the average across all makes of cars, noting that some providers are not shown and the percentages are calculated including ‘not yet serviced’.

The all-makes servicing retention trend shows steady gains from 1995 to 2005 by both ‘dealer for make’ (franchised workshops) and ‘other garage’ (the independent sector), and the virtual collapse of DIY servicing. Since then, the independent sector has seen servicing retention accelerate dramatically, partly at the expense of franchised dealers and partly by picking up servicing work from ‘not yet serviced’ as motorists keep their cars longer. DIY has levelled off somewhat in recent years by this measure.

What went wrong

Noticeably, as the first graph shows, servicing retention by ‘dealer for make’ has been falling since 2005. And it is this start date which explains why. New car sales peaked in 2003 and have fallen year on year since, with a few exceptions. New car sales in 2012 were 21% down on 2003. As a result of this decline, the four-year car parc has fallen by more than 20% between 2003/2004 and 2012.

Workshops in the franchised sector rely heavily on the four-year car parc for service and repair business, as our second graph explains, which breaks down servicing retention by age segment. Thus, if the four-year car parc declines, franchised workshops are hit with a similar decline in volume.

But it gets worse. Our second graph compares ‘dealer for make’ servicing retention in 2007 with 2012. In 2007, dealers were clearly retaining more customers with cars between four and six years old compared to 2012. The pre-recession year of 2007 represents one of the best overall results for ‘dealer for make’ servicing retention of 29.5%, whereas 2012 is one of the worst average ‘dealer for make’ servicing retention performances at 24.1%.

Quite evidently, 2007 was a ‘good’ result for dealers, partly because of the increased shares of the 4-6, 7-9 and even 10+ age segments compared to 2012. Since 2007, though, dealers have been losing business in these older segments.

But why?

It would be easy to attribute dealers’ poor servicing retention in 2012 to the decline in the four-year car parc and motorists looking for the cheapest suppliers. However, to do so also ignores potential solutions.

The dearth of new car sales since 2003 has increased the age of the car parc by over a year, and consequently there are many more cars in the older segments. Our extensive consumer research found that the requirement for routine servicing falls sharply when cars reach three to four years old and the demand for MOT testing and repairs increases significantly.

This is perhaps unsurprising, even obvious. But less obvious is the percentage of transactions which include an MOT or tyres – some 52% of the 7,154 motorists we interviewed for the 2012 survey. Of these transactions including MOTs and tyres, the independent sector secured 78% and franchised workshops 14%.

Numerical superiority

Given that MOT and tyre transactions (separately) make up nearly 38% of the retail SMR market by volume, franchised workshops are clearly missing out. This could simply be because motorists with older cars find the independent sector cheaper in these tough times.

The numerical superiority of the independent sector is probably a factor too. Although generally smaller than franchised workshops, independents are more numerous. Taking the independent sector as a whole (including independent workshops, fast-fits, autocentres and secondary players), its numerical superiority over franchised workshops is something like 3.5 to 1. In terms of MOT testing, and its entry to servicing and repairs, Trend Tracker estimates that over 70% of the independent sector as a whole has MOT testing bays on site, whereas less than an estimated 60% of franchised workshops have MOT facilities.

It almost goes without saying that the independent sector, particularly fast-fits, is extremely competitive for tyres. The top twenty independent chains (excluding tyre company-owned) control over 1,600 outlets and turn over £1.7 billion; 18 out of 20 lead on tyres. Most offer MOT testing as well.

Going forward

As new car sales pick up again, the topping up of the four-year car parc will benefit franchised workshops. But to really make an impact on the retail market for SMR, franchised workshops have to widen their offer by improving their penetration of the MOTs and tyre markets.

* Chris Oakham is the author of The Castrol Professional Car Servicing & Repair Trend Tracker 2013 Update is available now priced at £1,250 + VAT. More details at www.trendtracker.co.uk.
 

Tags: aftersales, Chris Oakham, Trend Tracker