“Some factories are concerned about their dealers' parts and service business—and they should be.”

A recent blog by Autonews.com (“New math: Fewer vehicle sales = lower service revenues”) highlights a couple of troubling trends in car dealership service:

1. Declining auto sales means that there are fewer, newer cars to be serviced by dealers.
2. Improved auto design and increased quality means less warranty and service work (with associated parts) for dealers.

The blogger adds, “J.D. Power forecasts a 20 percent decline in service traffic at dealerships from 2009 to 2013, resulting in a 25 percent decrease in service dollars from owners of 2005- to 2009-model vehicles.”

Automotive OEMs can’t afford to ignore the impact of decreased service at dealerships. Service business is vital to the health of a car dealership, especially when new car sales are flat (or down). And, indirectly, service business is vital to the health of an OEM; a big slice of overall OEM profits comes from aftermarket parts sales, and dealers are the ones who order most OEM parts. Less service means less aftermarket parts revenue.

So what can OEMs do to help their dealerships and help themselves?

1. Help their dealers provide faster, better service, which yields happier, more loyal customers. Although OEMs don’t make direct revenue from service, for the sake of long term parts revenue and positive brand perception, it benefits them to have more dealerships that deliver fast, accurate service. One way to improve service quality is to deliver not only updated parts catalogs but also service bulletins and other critical maintenance changes to the dealerships. Companies like Volvo have helped dealers decrease workshop service cycle time, bolster aftermarket efficiency, and promote more cost-effective service and repairs by implementing the Enigma electronic parts catalog in conjunction with their fault tracing and onboard diagnostics system. The implementation has dramatically reduced service times and improved service technician productivity.  Click here to read an earlier blog post we wrote, related to this topic.
   
   
2. Make it easy for dealerships to do business with the OEM. Dealers have choices, after all. They don’t have to order all their parts from an OEM; they can get some parts from parts distributors like AutoZone, Pep Boys, Advanced Auto Parts, or NAPA for example. (Although dealers are often obligated to use some OEM parts, that doesn’t mean they must buy those parts directly from the OEM.) OEM-direct sales are more profitable because there’s no middle man between them and the dealer. If the OEM makes it easy for dealers to find and purchase what they need, then dealers are less likely to get frustrated and buy their parts elsewhere. OEMs can improve their market share of service parts by making it easy for dealers to find and order parts directly from the OEM, via an accurate, up-to-date parts and service catalog. An electronic parts catalog that integrates with dealer management systems (DMS), ERP and e-commerce systems accomplishes this goal.

If the dealer channel is under stress then OEMs must find ways to help their dealer network succeed. One of the best ways to help a dealer is to deliver relevant, accurate parts and service information to the service bay. It’s a win-win-win situation: the service bay can have higher productivity, the OEM can sell more aftermarket parts, and the car owner can get his/her car fixed faster.

OEMs that make complex machinery (whether it’s heavy equipment, automobiles, oil rigs, or other discrete manufacturing products) need to support their dealers and distributors. This can be a challenge because dealers and distributors tend to run as stand-alone operations (often they are independent franchises) that have their own business issues, separate but related to the business issues of the OEM. One of the ways OEMs help these business partners is via an electronic parts catalog, to provide accurate parts and service information, streamline parts purchases and simplify customer support/service.

But creating an up-to-date parts catalog is no small task; many forms of data (schematics, manuals, service bulletins, inventory, etc.) must be pulled from multiple database sources, and formatted into an application that is accessible to many users. That’s where Enigma comes in, providing Electronic Part Catalog (EPC) technology that: 1) makes it faster and less expensive to create and publish aftermarket support applications; 2) makes it easier to buy service parts from the OEM and distributors; 3) improves customer support/service.

Some OEMs are motivated by saving money on the front end; i.e., saving money on the cost of producing their catalog. Goodrich Aerostructures, for example, saves $1-1.5M per year in production costs.  Others, like Ford, primarily want to help sell the right parts fast, without increasing customer support costs.  Others are keenly interested in improving their end-users’ customer service experience, like Volvo, which embeds the Enigma EPC into Volvo VIDA, its dealer support system.  (Relative to its former system, Volvo service techs now make repairs faster and service more cars per day.) 

The advantage of Enigma’s InService EPC software solution is that it can be tied into the OEM’s order management, inventory, ERP and CRM systems to automate the entire customer support workflow. It also allows dealers and distributors to integrate the EPC to their dealer management (or ERP) systems to automate workflow and part procurement for the dealer.

However, some companies require a faster rollout and lower costs (in dollars and IT resources), and consider fully-integrated parts logistics to be a future objective.  The solution in these cases is a software-as-a-service (SaaS) solution.  As more companies embrace a SaaS approach to IT, Enigma has responded by offering a SaaS version of our tried and true EPC technology.  Enigma SaaS EPC is a powerful product that helps OEMs put parts and service information online very quickly, allowing the OEM to support dealers and customers with unlimited updates of service and parts data.

One advantage of Enigma SaaS EPC is that it reduces the time and cost of launching a Web-based service and parts storefront. It can be rolled out in 90 days, with little or no upfront IT investment. Furthermore, because the application is hosted “in the cloud,” it reduces hardware server and maintenance costs.  The SaaS EPC solution is particularly compelling for two business profiles: 1) small-medium businesses (SMBs) that wish to keep infrastructure requirements low; 2) larger companies that want to start small as they move their customer support (and EPC) to the Web.

There are good reasons for both solutions; OEMs need to determine their immediate requirements, as well as their future goals, and choose an EPC solution that supports both.

A Volvo service technician uses the Volvo VIDA application in a dealership service bay.

As customers start returning to automotive showrooms, they seem to be avoiding service departments. According to NADA figures (as reported by Richard Truett in the November 2, 2009 issue of Automotive News), parts and service revenues at dealerships are dropping. There are a number of reasons for this: fewer new car sales and increased quality means less warranty work; higher parts and service costs (at most dealers) drive customers into independent repair facilities (IRF); improved consumables like engine belts, hoses and spark plugs tend to last longer; modular design practices that promote component exchange makes it faster/cheaper to replace items than to repair them. These and other trends have caused parts and service revenues to drop more than $3B, from 2005 to 2008, at new car dealerships.

I bring this up as another cause of concern for OEMs. (As if they need another worry.) Success or failure for dealership channels relies, in large part, on a healthy parts and service business. However, trying to increase service revenue by decreasing product quality really isn't an option-regardless of the practice of planned obsolescence. Today's customers demand high quality, therefore the question for OEMs is how to restore their dealer's profit centers-parts and service-without adversely impacting product quality and customer satisfaction.

The answer may lie in the complexity of modern automobiles. Dealers are uniquely qualified to service and support the deep-and rapidly changing-technology that is now standard on even inexpensive cars. Truett quotes John Baumgardner, service director at Orange Buick-GMC in Orlando, FL as saying, "'Diagnosing the problem is now more complex than doing the repair work.'" After describing how vehicles have up to 15 programmable modules, Laura Terzs, Ford's manager of diagnostic service products, states that, "'The trend now is to reprogram the modules rather than replace...So we release a software fix to the dealer vs. replacement.'" This suggests that OEMs must provide dealers with advanced diagnostics and software capabilities to ensure they have a service and parts advantage over independent competitors.

Truett writes, "Automakers are acutely aware that high satisfaction scores are a key way to retain customers, so they want to make service department visits infrequent and fast." That may sound as if the goals of OEMs are at odds with the goals of dealers-as they try to increase service revenue-but the reality is different. While it's true that OEMs are trying to reduce the amount (and cost) of service needed by any one vehicle, their focus on maintenance efficiency can give dealers the ability to increase the number of vehicles they service. If successful, the effect would be to switch the revenue equation from servicing fewer vehicles more frequently, to servicing more vehicles less frequently. And more vehicles being serviced typically results in greater parts and service revenue. Ultimately this is a battle for market share and as vehicles get more complex, smart OEMs can give their dealer channel a competitive advantage.

One OEM that has done this successfully is Volvo. Using Enigma technology, the Volvo diagnostics system deployed at most of their dealers has dramatically reduced service times; to the point where each service bay can now repair one additional car per day. If a dealership has eight service bays, that's 8 more cars each day-48 cars each week and almost 2500 cars each year-that can now be serviced by the dealer, without ever expanding their service department. That additional volume gives dealers the flexibility needed to get creative, finding new ways to improve customer service and brand loyalty.

Enigma improves maintenance and repair productivity-it's a one-stop-shop for all service and parts information. Providing technicians and parts managers with the information they need, instantly and accurately, is the first step to ensuring service visits are successful and fast. Helping OEMs find ways to improve dealer service and support is not a simple problem to solve, but it's what we do. As one of our customers said, "Enigma is the aftermarket expert."