Changes to Block Exemption, which came into effect at the end of 2003, will reform the franchised aftermarket dealer industry in Europe's five major markets. On the whole, both independent dealers and tire retailers who are familiar with Block Exemption expect it to have a positive impact on business. Datamonitor's Nieves Vecina-Jimenez looks at how the franchised dealer setup will change...

Half of the European aftermarket is in the hands of independent dealers (garages and tire dealers) and distributors, with their share ranging from one third in Germany to two thirds in the UK. Distribution groups and tire manufacturers have established their own chains of soft-franchised service and repair garages by taking independents under their wing. Some of these networks, for example Cecauto in Spain and Autodistribution in France, have a pan European presence.

Around 74% of independent dealers surveyed by Datamonitor perceived affiliation to a network as having a significant and positive impact on business volumes. As a result of the liberation of the market through the amendments to the Block Exemption regulation and the increasing vehicle complexity, independent garages are also considering affiliation with a vehicle manufacturer as an approved repairer to readily equip themselves with the facilities to service the modern car.

The share of private label brands in the automotive aftermarket sector has increased significantly

The volume share of private label parts in the European automotive aftermarket sector has increased significantly. Across the survey, 80% of independent dealers perceived private labels to be of equal quality to their branded equivalent. Also, 72% said that private labels provided their business with better margins.

This combination of profit and quality is likely to drive an increase in private label penetration over the next few years. The survey also focused on the role of branding and surveyed garages, tire dealers and franchised dealers. The majority of respondents said private label parts offer better value for money. Indeed today, private labels already hold a very significant share of the market for some fast moving auto parts in certain channels. For example, private labels hold the majority of the share in the Spanish independent replacement battery market. Tire manufacturers are strongly advised to develop their brand image within independent garages in order to boost their sales volumes.

Franchised dealers surveyed use almost exclusively original equipment spare parts (OES). However, the changes to Block Exemption could reduce the grip of the vehicle manufacturers over this channel, with dealers stocking independent aftermarket brands. Furthermore, as a result of the consolidation in the car dealership group sector, there is the potential that very large dealers groups could be in a position to sell private labels parts through their franchised dealers in the future.

67% of Tire dealers are unaware of changes in Block Exemption

Across the five major European markets, just 64% of garages and only 33% of tire dealers are aware of changes in Block Exemption. Amongst those who were aware, however, optimism over the effects of new legislation is highest among German garages. This may be due to the expected consolidation of franchised dealer networks in Germany, which are unsustainable in their current dealer numbers. As they fall, independent garages are expecting to win business left behind. Garages in Spain and in the UK on the other hand are least optimistic, with only 32% and 33% respectively expecting an increase in sales volumes.

Franchised dealers under pressure

Of the franchised dealers surveyed, 63% confirmed that multi-marque business currently represents a small share in their business, although 36% of respondents expect to get more multi-brand business in the next two years. Vehicle manufacturers are investing significantly in fast fit schemes so as to enable them to repair other manufacturer brands. The multi-marque strategy is likely change further as the Block Exemption amendment comes into full effect.

The changes to Block Exemption will take at least three to five years to make their full impact on the aftermarket. Franchised dealers are under increasing pressure to compete effectively in this new environment. As a result, the franchised dealer setup will change, through the implementation of new and innovative strategies to hold and develop their aftersales revenues. Likely strategies could include sourcing a greater proportion of independent manufacturer (IAM) parts or offering a multi-marque servicing business.

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