As increased global competition drives down profits from new car sales, the after-sales business continues to be a critical driver of growth for automotive original equipment manufacturers (OEMs). With the increase in the average period of vehicle ownership and the recent rise in sales volumes, the future of the after-sales market appears promising.
However, the entry of spare parts wholesale retailers, do-it-yourself shops, independent service centers, and online merchants pose challenges for OEM after-sales. These new players capitalize on the demand for spare parts by providing customers with similar products for OEM vehicles at a lower price. As customers purchase spare parts from such dealers and bear the additional labor costs themselves, OEM parts distributions departments are left to service warranty repairs, thereby transferring costs back to the OEM. Thus, despite after-sales generating at least half of OEM profits, the contribution to bottom line revenue remains minimal.
Most companies have overlooked the potential of after-sales to drive financial growth. Over the years, this department has accumulated disparate and complex processes and systems that are unable to support increasing margins across the end-to-end after-sales supply chain. One way of addressing the above challenges of high spare part availability, increasing cost pressures and the need to reduce inventory is to separate the after-sales business from vehicle manufacturing. By equipping after-sales with their own process execution entity, sales, operations, and supply chain planning processes, these departments can bring in business transformation and generate new revenue growth.