Issue Date: Service Manager Mar 1, 2012, Posted On: 3/16/2012
Study shows dealership service profits threatened by aging customer base DMEautomotive (DMEa) has released its new white paper, The Changing Service Loyalty Landscape, a comprehensive study of the $215 billion U.S. auto service market and the first-ever analysis of consumer service loyalty rates at dealerships, independent stores and aftermarket chains.
The paper includes new findings revealing that two "forces of graying" are significantly favoring aftermarket chains' service profits - while threatening those of new car dealerships. Data in the report indicates that the dealership service center is becoming a "senior center," as younger consumer segments are significantly gravitating towards aftermarket chains. And the report provides fresh evidence that the record age of the U.S. vehicle fleet is significantly benefiting independent stores and aftermarket chains, while taking its toll on dealerships.
The white paper identifies three levels of loyalty for service center customers: "loyalists" (who both visit and spend most at a store type); "swing loyalists" (who either visit, or spend most at, a store type, but not both); and "disloyalists" (who neither visit nor spend most at that store type).
Newly released data from the paper also analyzed loyalty, spend and service selection motivators by age, and revealed that dealership "loyalists" represent the oldest service customer, while aftermarket chains - which are poaching the largest share of business from both dealerships and independent shops - are best capturing the younger wave of shoppers.
The report also shows that dealership loyalists are more likely to be over 60 than any other loyalist group. Roughly half (47%) of aftermarket loyalists are under-34, while nearly half (46%) of dealer loyalists are a "graying" 50+. Meanwhile, over a third of those most likely to be disloyal to a dealership service center are only 25-34. With a significant percentage of a dealership's loyalists poised to exit the market, and as young aftermarket loyalists enter, the report's findings have troubling implications for dealerships service centers, if more heartening signs for aftermarket chains.
"If dealerships don't replace their aging loyalists, and aftermarket stores are successful in retaining their loyalists as they charge towards their prime spending years, a share-of-wallet sea-change is looming that would greatly favor aftermarket stores, while eroding dealerships' lifeline service profits," said Doug Van Sach, Vice President, Strategy & Analytics, DMEautomotive.
Dealership service is a $78 billion market, and DMEa's new data shows loyalists drive 62% of those revenues. Hence, if dealerships lost (and did not replace) loyalists over age 75, it would represent a loss of $310 million, and if over-70 loyalists exited the market un-replaced, it would represent a hit of $3.4 billion.
Aging Vehicle Population Also Means Dealership Losses: Despite economic recovery, Americans are still breaking records for how long they hold on to their vehicles. And DMEa's new data provides fresh confirmation that an aging, out-of-warranty vehicle fleet favors the aftermarket, while it takes a toll on dealerships. Consumers reported on their service center preferences for five "bread-and-butter" services across their vehicles' lifespan - and DMEa identified major dealership defection points around brakes, battery and tires:
Dealerships Lose Bread-and-Butter Service Business as Vehicles Age. Notably, less than half of the survey respondents reported they're likely to visit the dealership for core services even within the first two years of ownership, when the in-warranty dealership relationship is still strong. And as vehicles hit 3-6 years, dealerships lose (on average) 47% of that initial business, with only 31% reporting they would use dealerships for these services. By 7+ years, only 13% of customers will select dealerships for these services. DMEa's survey reveals independents and aftermarket stores grab significantly more "core" service business at vehicle-age-three, much earlier than many dealerships may imagine.