Billions In Automotive Dealership Service Revenues May Change Hands Due To New EU Block Exemption Legislation

IBM-sponsored survey predicts greater than expected switch to approved brand-independent operators, despite extended warranty agreements

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LONDON - 02 Dec 2002: A recent pan-European IBM survey, shows that competitive reforms to existing Block Exemption legislation (the new EU directive governing car sales and servicing) could prompt an industry-wide shake up for the European franchised automotive dealership network. Dealerships that are not prepared to change their business models in the newly deregulated marketplace could face significant revenue losses from new sources of competition. According to figures from the European Commission*, the European after sales services and repairs market is worth approximately 12 billion euros.

The survey, which was conducted by IBM's Automotive Practice, revealed that whilst franchised or manufacturer-owned dealerships are currently the outlet of choice for servicing and repairs, up to 85 per cent of fleet managers and 45 per cent of consumers in Europe, would consider changing to an approved, brand-independent garage. Price was quoted as the most important reason for switching to an independent operator; and a 20 per cent decrease in servicing costs would inspire 58 per cent of the survey sample to switch from a franchised dealer.

Although car manufacturers have traditionally linked dealer servicing to the continuance of manufacturers warranties, the survey suggests that extended warranty periods would not play a significant part in persuading the customers to remain loyal to franchised dealerships. This means that, with new regulations in place, high-volume manufacturers must now be prepared to fight for this business with new market entrants.

Mike Woodward, Automotive Retail, Sales and Aftermarket Leader, IBM Europe, says "We've already seen changes in the way people buy their cars across Europe. Our research shows that with the block exemption reform, motorists are ready to leave dealerships in large numbers for servicing elsewhere." He continues, "It's clear that the sales and aftersales segment of the marketplace is about to enter an era of unprecedented change, with new entrants looking to gain a substantial foothold. Motorists can expect increased contact from car manufacturers as they try to maintain long-term relationships. "At IBM, we are working very closely with all players to develop the new business models that will help them being successful moving forward."

Franz Gantner, Head of Operations at Arval PHH Deutschland, a fleet management company. "We will watch the reaction of dealerships and manufacturers carefully. Beginning next year, the total amount of warranty claims within our fleet will be compared to the savings achieved by assigning inspections and repairs to independent shops. For accident repairs, we already work very successfully with a number of carefully selected body repair shops, the majority of which are independent. Our aim is to find partners able to guarantee a defined quality and service level at the lowest cost."

In response to the Block Exemption reforms and the new research findings, IBM has developed a set of solutions for OEM's, dealers and new market entrants to make them more adaptive to industry change and help them build long-term relationships with their customers. Specific solutions include:

The research study, sponsored by IBM and conducted by NOP, polled 1050 consumers and 75 fleet managers throughout the UK, France and Germany.

* Source: European Commission study on the future of car distribution

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