How to future-proof your automotive aftermarket revenue management 

As an OEM, you know how lucrative the automotive aftermarket business can be, with many realizing a higher profit from aftermarket parts than vehicle sales. This sizable market and rapidly growing sub-industry has an estimated value of over $400 billion globally. This is in no small part due to the considerable number of independent manufacturers selling their brand of aftermarket parts and accessories, many times directly competing with OEMs. In addition, wholesale distribution channels, which sell products to online retailers, car dealerships and independent installers, make the competition fierce and intensify the competition.

Here’s a personal experience with this competition - my wife’s car needed a new driver’s side window regulator during the pandemic. My local car dealership quoted a price of $500 for an OEM part, not including installation cost. The main problem was that the part was warehoused overseas and wouldn’t arrive for several months. Since you can’t always drive a car with the window down, I located a reverse-engineered part online. While I usually choose OEM replacement parts, I had to make an exception in this case. The price was $77 dollars and shipped the same day. 3 years later, the part’s still working fine. 

There are valid arguments as to why OEM parts are priced the way they are and many people strongly prefer them, for good reasons. But, as an OEM, how do you compete in a current market like this? There are a variety of solutions available, with varying degrees of success, that address the aftermarket pricing challenges you face today. The critical question is whether these solutions will be able to meet the challenges of tomorrow. In the future, we think some exciting developments in the aftermarket will deliver significant benefits to OEMs – if you’re prepared to take advantage of them.

A change of mind in the market

Technological change in the auto industry is arguably increasing at a pace never seen before. For years, cars and trucks were designed, developed, manufactured and sold in pretty much the same way, with existing models getting an annual refresh. Now, automotive technology has become more sophisticated as electronics and software become more embedded in vehicles. Below are some of the main drivers of this unprecedented change and how they will likely change the dynamics of the aftermarket industry.

• Electrification—EV adoption has slowed, but it will eventually become car buyers' primary mode of choice. Since EVs require specialized capabilities, consumers might increasingly favor servicing their vehicles at an OEM-affiliated dealership.
• New Business Models – Subscription-based consumption models and predictive maintenance services, primarily driven by OEMs. One major automaker announced a plan to realize $23 billion annually by 2030 via “software-enabled product offerings and subscriptions.”
• Connectivity and Data Monetization – As a new revenue source, industry experts predict that connected car digital services will become the main driver of after-sales profitability for vehicle manufacturers. This is a big one that will reshape profit pools and give OEMs a significant leg up in the aftermarket as cars become more digitally enabled.

Given that these market forces will most assuredly affect the industry, the question that you, as an OEM, should consider is how “future-proof” my aftermarket business system is. Consider the revenue management system you currently use to plan, execute, analyze and manage your pricing and incentive programs. As the amount of data expands rapidly, so will ongoing transactions. Will it be up to the task? 

Reconsider revenue management 

Your revenue management system may primarily focus on current business needs, but is it also capable of quickly adapting to future market dynamics? The rate of change and competitive pressure will require real-time business insight with the flexibility needed to extend the scope as your needs evolve. Plus, do you know how costly it will be to make changes?

A future-proof revenue management system will:

• Be a core embedded part of your solution architecture that does not require an API with your ERP
• Ensure precise and accurate visibility into your end-to-end processes with a single source of truth
• Provide timely insights and analytics to foster better and more strategic decisions

No u-turns allowed

Now is the time to prioritize aftermarket pricing as much as new vehicle sales before the boom starts. McKinsey estimates connected car programs will deliver $400 billion in annual incremental value by 2030. To effectively manage future aftermarket prices and maximize margins, OEMs like you must find the right price to charge at the right time and incentivize their partner's customers when needed. To achieve this, complete transactional visibility and control of direct and indirect costs are required across the direct and indirect channels, considering the particularities of each market.

Automakers often need help planning compelling offers and incentives to drive increased sales. This will undoubtedly be the case with future connected services, subscriptions, maintenance agreements and other technology-enabled monetization opportunities. Inflexible systems that are costly, difficult or unable to adapt to changing conditions can leave you trying to catch up in the aftermarket race. The ideal future scenario involves a single, centralized solution that avoids disruption or duplication of data and improves accuracy, which is adaptable to future market conditions. With data in one place, you gain complete control of your revenue management processes thanks to a simplified, fully integrated IT landscape.