Deloitte advisory: Service and parts operations can refresh automotive industry stall
With September car sales data soon to be released, automotive companies are hard pressed to beat the economic downturn and find ways to grow revenues. Service and parts operations may hold the key, according to a new report by Deloitte Touche Tohmatsu , Ladies and Gentlemen, Start Your Service Engines: Competing on Service Excellence in the Automotive Industry .
Deloitte research shows that service and parts operations can be resilient in an uncertain economic climate and return profits on average 54 percent greater than other areas of the business.
Companies fail to tap opportunity
Deloitte estimates that service and parts operations account for an average of 36 percent of an original equipment manufacturer’s (OEM) revenues, yet most companies have a long way to go before they can harvest the immense potential of service and parts sales. The study indicates that even if the total market potential is typically two to 10 times larger than the captive market, the service businesses of most automotive companies today reach only a small share of this market.
“Besides the potential positive impact on sales and profit, companies that focus on improving their service and parts operations stand to gain from reduced cost and improved customer loyalty,” explains Jeff Glueck, a principal with Deloitte Consulting LLP.
Lack of information and people
Few automotive companies benchmarked in the Deloitte study said they had extensive visibility into service profitability (22 percent); parts profitability (38 percent); sales channel profitability (16 percent); customer profitability (16 percent); and market share growth metrics (9 percent). And a large number of companies still register a low level of forecast accuracy for parts demand, suggesting significant problems in managing demand, inventories, and capacities. As an example, for a quarter of the companies benchmarked, the median forecast accuracy for parts demand was lower than 30 percent. Resourcing is a further challenge with some dealers investing up to 10 times more in their sales staff than in their service staff.
Another outcome of the study is that automotive OEMs are not delivering parts on schedule, which is a key success factor for service business. Just one-quarter of automotive companies benchmarked deliver parts on schedule more than 96 percent of the time, and only one quarter say that more than 95 percent of their service orders are resolved and closed on the first call.
Execution is the difference
“It is simply not enough just to add service and parts operations to the top of a corporate agenda,” maintains,” says Glueck. “What makes the difference is how companies execute on the plan. There is a lot at stake that could taint the consumer’s opinion if the service and parts operations are not managed to expectation. The increased frequency and shorter life cycles of new product introductions creates added complexity. It can escalate costs and parts obsolescence, negatively impact customer focus, and deteriorate customer service quality. Quality issues with service and parts also extract a toll in terms of warranty costs, brand damage, and lost customer loyalty.”
However, there is reason for optimism.
“Automotive companies are slowly realizing that need to focus on the service business if they want to survive. Unresponsive customer complaint handling, inefficient warranty management, or reactive, slow, and expensive service delivery can mean the slow—or sometimes not so slow—death of a brand, and companies are responding to this threat,” concludes Glueck.
About the study
The Deloitte Touche Tohmatsu Global Service and Parts Management Benchmark study, which includes data provided by 39 of the world’s largest automotive and commercial vehicle companies, focuses on the challenges and opportunities for building and sustaining profitable growth through excellence in serve and parts management. Total corporate revenue for the participating companies exceeds US$900 billion dollars. The firms’ corporate headquarters are located in Europe (64 percent); North America (33 percent); and Asia (3 percent).