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Auto Aftermarket: Brand Chain is the Way to Go (Part II)

Date:08-25 09:42 Source:International Business Daily Authour:Wu Yue

Chain brands integrate unauthorized stores to compete with 4S stores

There is no doubt that the six international brands want to cooperate with hks360 because they want to sell parts to China's vast auto aftermarket. Yu Hongjiang admitted that the cooperation between hks360 and the six international brands is a relation of exclusive agency. "Our goal is to provide consumers with original international brand-name parts featuring reliable quality and fair price based on our fast repair chain outlets and services. So far we've agented more than 200 famous international and domestic auto part brands."

Fast auto repair chain (market force) will gradually eliminate unauthorized stores that use shoddy parts in large quantities, thus forcing the so-called "third-party parts" out of the market. The original parts sold by Marelli and other international brands at the hks360 platform convey a clearer idea and are of better quality guarantee than the "homogeneous parts" advocated by the Ministry of Transport's Guiding Opinions. Moreover, the part sales channels established by international auto part giants also ensure the implementation of the Guiding Opinions - "to open up the auto aftermarket and ensure the rights of all repair enterprises and owners to use homogeneous parts".

Yu Hongjiang emphasized two points repeatedly regarding the fast auto repair chain that hks360 and international brands like Marelli cooperate in:

First, they don't challenge 4S stores, only compete with them through differentiations. Backed by auto manufacturers, 4S stores are able to provide comprehensive technical services and are much more superior to unauthorized repair enterprises both in technology and equipment, especially in the diagnosis and repair of mechanical failure. hks360 is focused on fast repair, fast maintenance and wrecked vehicles, while vehicles with difficult problems still need to go to 4S stores.

According to Yu Hongjiang, the pessimistic views about 4S stores today are exaggerating. People in this industry all know that as a channel management model that has been formed by automakers through hundreds of years of experience, 4S stores won't disappear, although they will face rigorous selection and elimination under the impact of the Internet. 4S stores do have many problems in afterservice, but that is mainly because auto manufacturers were too busy expanding their network when the market enjoyed high-speed growth, so their extensive management was glossed over by the pretty performance statement. Now that the market has geared down to micro growth, manufacturers will definitely integrate and optimize their channels, which will give rise to even more capable 4S stores that other repair enterprises simply cannot compete with.

Second, why is fast auto repair chain able to provide cheap and quality services? To put it simply, we save money for car owners in three ways. First, the parts come to the store directly from the producer without intermediate links. Second, we only serve cars, not car owners. Our chain outlets don't have reception, finance, lounge or free beverage. There is only outlet manager, repair consultant and mechanics, all of whom play several roles. A 200-square-meter fast auto repair chain store is completely and solely committed to serving cars, whereas in a 5000-square-meter 4S store, only 1000 square meters are used for auto repair. Third, we provide high repair efficiency. As soon as a vehicle enters the outlet, it goes directly online while repair and maintenance items are determined during communication with the owner. This kind of oral contract permitted by the Contract Law saves time by skipping written contract signing at the 4S store. It takes 30 minutes on average to maintain a car at an hks360 outlet, whereas it usually takes two hours at a 4S store.

This is actually a brand new process, and the saved capital can be used to buy better equipment. Compared with 4S stores, fast auto repair chain stores not only feature larger equipment density, but also many high-end selling points, such as replacing transmission fuel at constant temperature, brake fluid boiling point detection and electro-coating (the key to rust resistance). 4S stores wouldn't take the trouble to go into such detailed procedures, but they concern the vehicle's life cycle and value preservation.

Then what does it take to join hks360? A business area of 200 square meters, 2000 customers and an initial fee of RMB100,000 is the minimal requirement. In return, hks360 provides each franchisee with repair equipment worth RMB28,000, personnel training and community ad promotion. When asked about profitability, Yu Hongjiang introduced that most of their franchisees are private businesses, which fall under the category of small and micro enterprise that the nation encourages, so their tax is much lower than direct-sale stores.

In terms of brand relation, the six international brands that cooperate with hks360 build their own stores with their own brands. In the early stage, hks360 is only reflected through the sub-brand Quai Xiu Ge jointly used with its partners.

Conclusion: benign competition benefits consumers

Although Yu Hongjiang claimed that they "will never challenge 4S stores", industry insiders all know that fast auto repair chain stores will definitely shunt 4S stores' business. They are in competition, but this market-driven benign competition can urge 4S stores to lower operating cost and improve service. According to public information, many 2S stores, fast repair outlets and spraying centers developed either by manufacturers or by dealers have come to tier-4 and tier-5 markets, indicating that manufacturers and dealers have both felt the pressure.

But Yu Hongjiang isn't afraid because, in his words, manufacturers and dealers only serve a single brand but fast auto repair chain serves a range of brands. What he has in mind is even more than that. He wants to use the hks360 platform to bring more well-known international and domestic part brands to consumers, so that they won't be limited to a small number of tyre and engine oil brands. This is very ambitious, and brand effect can definitely push his chain to become bigger and stronger. However, in IBD's opinion, what's most praiseworthy is hks360's business model because it integrates unauthorized stores. If it can evolve to be an industrial benchmark, it will help regulate and standardize the chaotic Chinese auto aftermarket and consequently benefit the consumers.

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