Automobile dealerships vs. the aftermarket

"In the old days, there wasn't much competition from the aftermarket," says Tex Pulcifer, shop manager at Certified Transmission & Auto Service in Crestwood, Ky., and a former master technician at a Ford dealership. "The training for technicians at the dealerships was so advanced that the dealers were getting all the business."

But a lot can change in two decades. The rise of independent repair facilities and the increasing number of certified technicians working in these shops have lured customers with vehicles in need of repair away from dealerships' service centers. With so many customers funneling money into the aftermarket, dealers are fighting to win back market share and make gains in the parts and service sector. And, according to a recent survey fielded by research firm The Freedonia Group, they just might be winning the war.

A growing business proposition

In a recent study that focused on the automotive aftermarket in North America, The Freedonia Group reports that automotive dealership participation in the automotive repair and maintenance industry will grow by 4.9 percent per year through 2010, to $27.4 billion, the third-fastest growth rate in the market. This is a direct result of automobile dealerships actively working to capture additional business in this sector, and generated 58.5 percent in operating profits in 2005 alone. Also noted in the survey is that as the automobile continues its shift away from mechanical systems and toward electronic control, the dealer's access to the latest service bulletins, training and electronic system diagnostic codes is helping dealers increase their repair and maintenance share.

"Dealers recognize that there's a higher margin, a bigger profit on parts and services," says Stephen Spivey, an industry analyst with the business research and consulting firm Frost & Sullivan. "It's in their interest to go after that business, and they certainly have (gone after that business.) In fact, they've done better than they have traditionally done (in this sector) in the past."

"We have an overall retention goal (for the company), and that is what we are continually shooting for — to improve the overall number toward that goal," he says. "It's a long-term goal, but we're seeing the key indicators of our maintenance work increasing and are happy with the progress we're making."

According to Stein, Toyota has modeled its customer-retention strategy after its corporate culture. That is, the corporation has chosen to develop and maintain good relationships with its dealers and is dedicated to helping those dealers develop processes that are conducive to good customer handling. A key component of this strategy depends on helping the dealerships with regional marketing efforts, which are done through radio spots and direct mail campaigns, as well as through www.toyotaownersonline.com. The Web site was created to provide Toyota owners with information about their vehicles and to offer them special promotions on parts and services.

But more important than marketing, says Stein, is providing technicians at the dealerships with the training necessary to get a vehicle repaired the right way — the first time a customer brings it in to be serviced.

"The University of Toyota offers classes for technicians and dealer personnel, as well as certification in many different areas," Stein says. "We work closely with the university to make sure the products and programs that are being promoted at the dealership level are aligned with the training that is being offered, and we help develop and even implement that training based on specific programs at specific dealerships. This gives our dealers the type of support that is necessary for them to address their customers' needs."

Who's winning the price wars?

Automobile dealerships may be seeing an upsurge in the maintenance and repair sectors, but they still can't match the aftermarket for price, service or convenience, say many industry experts. In fact, The Freedonia Group's survey concludes that while dealerships are seeing more business, they typically serve as the service provider of last resort.

Spivey, of Frost & Sullivan, agrees. "The aftermarket is winning the battle on routine maintenance. Because they can back up the products they use with warranties, there's almost no risk to the consumer if he or she chooses to get a vehicle repaired at an independent facility."

Spivey's research has turned out a bevy of interesting numbers to support this statement. For example, he found that 53 percent of minor maintenance is done at dealerships across the country, while 47 percent is done in the aftermarket. However, when it comes to major repairs — including the replacement of tires, exhaust parts or brake components — 77 percent of the 47 percent who went to the aftermarket will stay in the aftermarket, post warranty, to have their vehicles fixed.

Pulcifer, who spent almost 20 years working at a Ford dealership, agrees with what Spivey's research shows.

"When people take their cars to a dealer under warranty, it's about money. But when they go to an independent shop out-of-warranty, it's about customer service," he says. "I've lost some oil changes and routine maintenance work to local dealerships because I can't compete with the prices (on those services). But my customers always come back to me for larger repairs. Why? They say my technicians are just as educated as the technicians at the dealership and that they are more customer friendly."

Aftermarket training

Although industry experts are adamant in their belief that many of today's technicians are undertrained, Pulcifer has an entirely different take on the issue. In fact, he maintains that aftermarket technicians are trained just as well as the technicians at automobile dealerships, if not more so, and that this keeps customers coming back.

"Technology has forced technicians to get training," he explains. "There may be a lot of OE dealerships out there, but independent shops will always outnumber them. So, the ratio of trained employees is going to be far better at the independent shops than at the dealership."

Pulcifer's shop, Certified Transmission & Auto Service, maintains a rigorous training schedule for its technicians. The shop is a member of ACDelco's Total Service Support (TSS) program, and as such can take advantage of ACDelco's "blended learning" approach to training, which incorporates hands-on classroom instruction with Web-based courses.

"ACDelco is uniquely positioned in the aftermarket because of our relationship with GM," says Andrea Kangelaris, assistant communications manager with GM Service and Parts Operations (SPO) and ACDelco Communications. "We have the fortune of leveraging the heritage, expertise and resources of our parent company (GM) to successfully grow both channels without trying to take business away from either one."

One way in which ACDelco leverages GM's experience for the aftermarket is through technician training, which is provided to all TSS participants at no additional charge. Currently, 80 percent of ACDelco's training is delivered via a Web-based approach, including TECHAssists, a new feature that offers technicians brief training sessions with up-to-the-minute information on a variety of topics. Aftermarket technicians are not required to participate in these training sessions, but Kangelaris reports that TSS program participants completed more than 20,000 courses in the first half of 2007 alone.

At Certified Transmission & Auto Service, Pulcifer requires ASE and ACDelco training for all technicians as a condition of their employment. Of the six technicians in the shop, two are certified master technicians (including Pulcifer), and one is just a test away from earning the coveted designation. Pulcifer even requires his service advisors to attend training classes.

"ACDelco went out on a limb to provide training to the aftermarket," he says. "If you're a TSS shop, there's no excuse for you not to have the best trained technicians in town."

Service with a smile

According to research done by The Freedonia Group, automobile dealers have made themselves the de facto repairers of choice for many vehicle owners by extending new vehicle standard warranty coverage beyond the three years/36,000 miles threshold to five years/50,000 miles or 100,000 miles or more. These warranties do not carry a deductible and are transferable to second owners. But experts agree that this trend can be seen as replacing part of the warranty work new vehicle dealers have been losing due to improving vehicle quality and durability.

"The dealerships have almost run themselves out of work, now that technology has changed these cars to where they last so much longer," says Pulcifer. "They need to go after the maintenance and repair business because they just aren't selling as many cars as they used to."

But surveys don't lie — dealerships may be growing their service and parts business, but they are not going to catch up with the aftermarket any time in the near future. Why? Customer service, answers Pulcifer: simple, old-fashioned customer service.

"Customers don't bring their cars in here just because they need a place to park," he says. "I train my techs to look a car over, from head to toe, each time it comes in. That car is here for a reason, and it's our responsibility to figure out the problem and tell the customer what needs to be fixed. That's what sets us aside from the dealers, and that's what will help us survive in the long run."

Not surprisingly, Spivey agrees. "If a car is new, you take it to the dealer. If it's older, you take it to the most convenient place — and that's the aftermarket."

Sounds like you don't need to be an industry analyst, or a game show host, to realize that when the survey says the aftermarket is winning, that's where you should take your car for maintenance and repair work.