The Trend Tracker report on the U.K. car service and repair market shows that franchised dealers’ traditional near-monopoly of servicing and repairs of cars under manufacturer’s warranty is declining. In 2002, the European Commission introduced legislation to make the car service and repair market more competitive by opening up the market to independent garages and the research shows that car dealers’ share of the lucrative service and repair market for cars under four years old has fallen from 67% of all services and repairs in 2003/04, to 65% in 2005/06.
The Castrol Business Services Repair Trend Tracker research report shows that independent garages have seen their share of warranty-period servicing and repairs rise from less than 18% in 2003/04 to almost 21% in 2005/06. Trend Tracker analysts say that although the decline is small it shows that the regulations introduced in 2002 have begun to have an affect.
For car owners this is good news as it means that they are getting access to warranty-period servicing and repairs at lower cost from independent garages, but for car dealers it is less welcome. With car servicing accounting for 31% of a typical car dealership’s total profitability, dealers have been able to exploit their virtual monopoly of the warranty-period service and repair market to significantly increase their labour rates.
This has been necessary to offset the declining profitability of new car sales. Currently, new car sales contribute just 4% to a typical franchised car dealer’s gross profits and these have been hit in the last two years by falling new car sales.
Increased competition from independent garages will mean that the manufacturers’ dealer networks will be less able than in the past to simply jack up their service labour rates to compensate for declining revenues and profits elsewhere.
Some dealers, though, have bitten the bullet and are beginning to compete with independent garages to win a larger share of the service and repair market for cars aged four years and above – a market segment that independent garages have traditionally dominated. However, the analysts point out that due to the development of more technically complex vehicles, a higher proportion of service and repair work will gravitate towards the manufacturers’ dealer networks.
The market analysis shows that this is beginning to occur, with previously simple tasks such as headlamp bulb replacement becoming dealer-only jobs with the widespread use of high-voltage Xenon headlamps. On some models, access to components such as headlamp bulbs requires either complete removal of the headlamp unit itself using specialist tools, or even removal of the complete bumper unit. This ultimately results in significantly higher replacement costs, not just for the component itself, but involving more labour time too. As automotive technology advances, the cost of repairs is likely to increase significantly in future.
Trend Tracker’s analysts point out that further regulation of after-sales competition by the European Commission may become irrelevant due to more complex vehicle design. Trend Tracker research director Robert Macnab said: “As cars continue to become more reliable but contain increasingly technically complex and safety-critical electronic systems, cars may need less regular servicing, but when things do go wrong, they will need to be fixed by specially trained authorised repairers.”
