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In a rapidly evolving automotive industry, disrupted by volatile interest rates, new market entrants, rising BEV sales and new retailing approaches like the agency model, the key to a dealership’s success lies in an often-overlooked area: aftersales.
While the glitz and glamour of new car sales often takes centre stage, it’s the aftersales department that holds the potential to drive consistent revenue and secure long-term profitability.
As René Tønder, an automotive futurist and strategist, emphasised during a recent webinar, “Margins on sales of new cars and used cars are likely to decrease over time. To compensate for this, car dealers need to become even more efficient in the aftersales department, as this is where the majority of their future income will come from.” This underscores the necessity for dealerships to develop an obsession with aftersales to ensure their success in the coming decade.
“To compensate for decreasing margins from the sales department, dealers need to become even more efficient in aftersales.”
The recipe for success to thrive in the future is simple. If dealerships can’t navigate factors beyond their control — such as market fluctuations, regulatory changes and new retailing approaches, then they must focus on what they can control and improve. This includes:
Market fluctuations are a significant factor that dealerships cannot control. Variations in new car sales due to economic conditions and volatile interest rates can significantly impact consumer purchasing power and financing options. During periods of economic downturn or when interest rates rise, consumers may delay purchasing new vehicles, leading to a decline in sales. This unpredictability makes it challenging for dealerships to maintain a steady revenue stream from new car sales.
René Tønder highlighted this issue, stating, “2023 was a pretty good year compared to the year before, but this year will be flat. Germany is probably in a recession again, or rather still, and overall the market dynamics are stable but flat.” This underscores the importance of finding alternative revenue streams.
Regulatory changes are another uncontrollable factor that can significantly impact profits in the automotive industry.
New laws and regulations from national or supranational governments, such as the European Union, can introduce new emissions standards, safety requirements, and other compliance measures. These regulations often require dealerships to invest in new technologies and training to meet the updated standards, which can be costly and time-consuming. For instance, stricter emissions standards may require the adoption of new equipment to service battery electric vehicles, while safety regulations might require additional certifications for technicians.
“While EVs are expected to reduce the need for certain types of maintenance compared to ICE vehicles, the overall effect on aftersales revenue is not as drastic as initially feared.”
The transition to battery electric vehicles (BEVs) is one of the most significant changes facing the automotive industry. But, while EVs are expected to reduce the need for certain types of maintenance compared to internal combustion engine (ICE) vehicles, the overall impact on aftersales is not as drastic as initially feared.
Data from countries with high EV adoption, such as Norway and Denmark, shows that while service needs are lower, they remain substantial. As René Tønder noted, “Some of the fears that we’ve had about battery electric vehicles — that their service need is substantially lower than it is for internal combustion engines — well, that’s not entirely true.”
Additionally, Tønder highlighted the regulatory impact on EV adoption: “The overall market share of battery electric vehicles in the European Union decreased by about two percentage points so far in 2024 compared to 2023. This development is driven by regulatory changes, such as the cutting of subsidies in Germany.”
He further emphasised, “Regulatory changes at the national level, like those in Germany and Italy, are pushing for a more flexible approach to the European Union CO2 regulations.”
China’s influence on the global automotive market is a force that cannot be underestimated. As René Tønder vividly described, “It’s like a tsunami waiting to strike. We’re seeing some big waves now and think, ‘Ah, well, we can handle that.’ But what we don’t know is that the tsunami is waiting out in the ocean, and it’s coming our way.”
China’s massive production capacity and aggressive market strategies are reshaping the landscape, particularly in the realm of electric vehicles. The pressure from China’s overproduction is driving down prices globally, creating a highly competitive environment.
Another critical development is the shift away from the agency model by many brands. The agency model, where manufacturers sell directly to consumers and dealerships act as delivery and service points, is being reconsidered.
As Tønder noted, “The agency model will be dropped by many brands.” This shift means that dealerships will need to refocus their efforts on areas they can control, such as aftersales, to maintain profitability. By becoming centres of excellence in aftersales, dealerships can differentiate themselves and build stronger relationships with their customers.
Aftersales services, including maintenance, repairs, and parts, are crucial, as they provide a stable revenue stream that can shield dealerships from the volatility and fluctuations in new car sales.
“There are still many things a dealership can control — such as upselling, customer loyalty, and retention.”
As UK-based automotive expert Alastair Cassels pointed out, “The successful dealership of 2030 needs to be obsessed with aftersales and driven by data.” This obsession is not just about maintaining current operations but about leveraging customer data to enhance service offerings and customer satisfaction.
One of the first steps to capitalising on aftersales potential is taking control of customer data. By using their customer database to the fullest, dealerships can tailor their services to meet specific needs, thereby driving repeat business and fostering loyalty.
This approach not only enhances customer satisfaction but also ensures a steady flow of revenue. “It’s all about focusing on what can be controlled and improved,” Tønder noted. “While car sales are influenced by external and unpredictable factors, there are still many things a dealership can control — such as upselling, customer loyalty, and retention.”
Aftersales services can significantly contribute to the bottom line. This is particularly important in an industry where market dynamics are increasingly unpredictable. As René Tønder explained, “We are actually in a growth business. The vehicle fleet at a European level is increasing every year, and aftersales as a profit driver in your business will become even more important.”
The importance of aftersales lies in its ability to provide a consistent and reliable revenue stream. Unlike new car sales, which can be highly volatile and influenced by economic conditions, aftersales services are necessary and recurring. This makes them a stable source of income that can help buffer against the ups and downs of the market.
Moreover, the growing vehicle fleet in Europe means that there will be an increasing number of cars requiring regular maintenance and repairs. This trend is expected to continue, providing a steady demand for aftersales services.
Additionally, aftersales services offer opportunities for upselling and cross-selling. For instance, ahead of a routine maintenance visit, a dealership can recommend additional services or products that enhance the vehicle’s performance or safety. This not only increases the revenue per customer visit but also enhances customer satisfaction and loyalty.
Aftersales is a stable source of income that can help buffer against the ups and downs of the market
In summary, by prioritising aftersales, dealerships can secure a more predictable and sustainable revenue stream, capitalise on the growing vehicle fleet, and create opportunities for additional sales. This strategic focus on aftersales is essential for navigating the uncertainties of the automotive market and ensuring long-term profitability.
Looking ahead, the aftersales market is expected to remain relatively stable, even as the automotive industry undergoes significant changes.
The rise of electric vehicles (EVs) has raised concerns about the reduced need for maintenance compared to internal combustion engine vehicles. However, data from countries with high EV market penetration suggests that while the service needs for EVs are lower, the impact on aftersales revenue has been overestimated.
In conclusion, the secret to a high-performing dealership in 2030 lies in a relentless obsession with aftersales. By focusing on what can be controlled and improved — leveraging customer data to drive customer loyalty — dealerships can secure a stable and profitable future.
As René Tønder aptly put it, “The future winners in our business will be the companies that can merge the physical and the software areas as best as possible.” Embracing this approach will ensure that dealerships not only survive but thrive in the years to come.
