Maintenance Becomes a Bigger Business than Car Sales

The Senior Vice President of AutoZubak discusses the moves his company is making to combat the crisis in the automotive industry. For the last 15 years, 70 percent of revenue came from sales, and today maintenance generates that much.

interviewed by Edis Felić

Car sales have fallen by 65 percent in the last two years, što will lead to significant changes in that market. What changes are we talking about and how has AutoZubak responded to the new challenges? We spoke with Dimitrije Trbović, Senior Vice President.

• Can we expect a recovery in the car market?
– At the end of 2008, our forecasts were bleak even though that year was a record for the automotive industry in Croatia, finishing with nearly 88 thousand cars. At that time, it was not popular to write negative forecasts. However, information from the West indicated this, as did our economy, which did not inspire confidence. Namely, the automotive market does not stand apart from the macroeconomic picture in the country, so it was unrealistic to expect growth this year. On the contrary, our forecast indicated that 35 thousand cars would be sold this year, što is a 65 percent drop compared to 2008. We can expect a slight recovery only in a year or two, with sales of 40 to 45 thousand cars, and only in 2015 should we reach the figures from 2008.

• What is the relationship between corporate and private sales?
– In these years, corporate sales are 50 percent higher. This is common in such a crisis. In normal times, Croatia should be buying 100 thousand cars a year based on its population. We approached that number in 2008, and by 2013, we would have reached it if the situation were normal.

• What will be the consequences of such a drop?
– Nothing will be the same as before. This industry has changed itself; many players are falling out, and that happens every month, and there has not yet been consolidation. Besides us, there are a few other companies. There are many small dealers tied to entire families, which makes it hard for them to admit defeat because it is a rapid decline in their private lives as well. Even the big players, if they have not changed their way of playing in such times, will find it very difficult to survive, because when personal and light economic programs are summed up, this year alone has recorded a 26 percent drop, with personal sales down by 22.8 percent. AutoZubak responded to this with measures, which is why we actually grew by 17.22 percent.

• What have you done?
– We stopped focusing solely on car sales, because anyone who thinks they can live off that is mistaken. The business is in services. Maintenance is part of that, and thus we gained new customers or old ones who left and then returned. Secondly, we have been preparing for ten years to explain to the customer what the total cost of owning a car is, because the cost is not just the purchase. Our competition largely hides this like a snake hides its legs. We think differently. We started with legal entities. Our fleet management project (a model for monitoring the entire fleet that includes procurement and ongoing maintenance of the company’s fleet for an agreed period, note) is the strongest in Croatia, and even in the countries of the former Yugoslavia, which we are particularly proud of because this system guarantees customer retention for us, but also provides a very clear direction for private customers. So, on one side, we are talking about legal entities that clearly understand costs, which is why our fleet management is growing exponentially, and on the other side, the program is the same for private individuals. We emphasized fair offers because people then begin to understand the costs of owning a car. This is the foundation of our future business.

• What costs are we talking about?
– The sum of insurance and maintenance costs in some situations even reaches the price of the car, što dealers often will not admit. We sum up all costs and present them fairly. We have made them so that they are now more favorable than what would be paid in a traditional way. We have the most favorable offers for insurance, registration, and maintenance at authorized service centers; and those after the fifth year are somewhat lower. This is a fair offer. On top of that, we added a warranty: the manufacturer provides two or four years, and we cover the rest up to seven years. Thus, the car user knows exactly how much the car will cost them down to the last detail. Ten years ago, fleet sales started painfully, but today we are moving into the retail segment. We decided to present this to the customer from the start, in a credit or leasing program with a fixed annuity. The innovation is that in Western Europe, financial institutions do this, and we, who are simultaneously service providers, do it ourselves. That is why we have arranged credit arrangements with banks.

• What is the ratio of revenue from sold cars to services?
– For the last 15 years, the ratio of net revenue was 70 to 30 in favor of sales, and today it is reversed, što is completely logical. The same is happening in Europe.

• How have your business partners reacted?
– This model has become so visible at the European level that even parent factories, such as Audi, Škoda, Volkswagen, visit us to study the model we have developed. After all, it gives them a clear direction on how to increase dealer profitability, što is actually the next serious task for factories that will have to focus more on this in the future, because the key question for the sustainability of sales will be how to maintain dealer profitability. That is why our model is excellent. Of course, we could do this because we are large enough to cover Croatia; where we may not be, we have subcontractors for the service.

• Has your competition copied you?
– There have been some attempts, but in the end, they returned to financial institutions, which is why their service became more expensive. Car dealerships do not have enough strength to copy. At AutoZubak, there is an entire department that deals with price optimization, and that happens almost every day. We check hundreds of invoices every day and optimize them to offer fair prices. That is why 90 percent of our customers are loyal. If you turn only to your profit, without the customer, the contact with them will eventually break off, especially when structural changes in the business occur.

• Such an approach must have caused a change in approach at all levels in your company.
– That’s right. Three years ago, we set up a system in which 30 percent of all monthly salaries depend on the customer satisfaction index. Others do it quarterly, but most often only based on surveys, without linking personal income and customer satisfaction. We call eighty percent of our customers through our own service, and based on that, we calculate their satisfaction index. This index has its plan. If something is not in accordance with it, salaries change by 30 percent.

• Have satisfied customers increased your salary as well?
– When we first presented this system, we encountered general approval in the organization. However, employees began to think differently when they felt (dis)satisfaction from customers in their salaries. There were justifications like ‘you know, this is such a customer, that is such a customer,’ but we insisted that this is a one-way street. Some did not want to understand this and dropped out; those who remained today truly know what it means. Initially, the satisfaction index was 65 percent; we even tightened the criteria with the growth of the organization; today we have reached 97 percent.

• There are cases where owners do not sell their cars waiting for their service to expire so they can go to private mechanics, which is cheaper for them.
– Already in the third and fourth year, as soon as the warranty expires, customers stop being loyal and go to unauthorized services. For them, we prepared a special project ‘Service Packages’ in which we do something much different from the market. For vehicles older than three years, we offered favorable prices for original spare parts and exclusively Castrol oil in our authorized service network in partnership with Castrol, which is also available in unauthorized services. Namely, we asked ourselves why we do not have more service users after the warranty expires. All analyses showed that we were somewhat expensive, and customer satisfaction also depends on price. We worked on the project for six months starting from the source, from unauthorized services. We embarked on this at the beginning of the year, što turned out to be an excellent move, so we opened another business unit in that area. Now we are analyzing customers who came and those who left and then returned, in which marketing helped us – we reached out via email to 80 thousand addresses.

• How much do you invest in marketing?
– We did not reduce the budget close to the drop in sales as an equivalent, but we could not avoid reducing it. It is important to ask whether you are ready to change the rules within marketing. The fact that we utilized 80 thousand customer addresses in a year means that we created a small IT program that allows all service advisors at AutoZubak to call all customers and record when they want to use our services. Thus, our service advisors have somewhat become part of marketing. In addition, there has been a lot of ‘co-branding’ with other companies like Castrol and Allianz, so nominally less money was spent, but we achieved a greater effect.

• You will have something to say on September 23, when your company, together with Lider, organizes a Business Club at the Zagreb City Café on the topic ‘Innovation for Profit or Savings’.
– Yes, with Lider, we are setting up a project that we want to become a tradition and held every year on a different topic. This year we have very interesting participants. We want to emphasize the importance of this topic: it is not about cutting costs, which can also lead to a significant reduction in revenue. As a citizen, I am proud that we have world examples for this topic in Croatia.

• Are you planning to buy dealerships?
– Every month we are offered to buy them, but we are cautious in planning because we think there is an excess of dealers in Croatia. We are not a debt-laden company and we approach this business selectively – we only enter where we are sure of profit in the short term. Every theory says that a strategic investment can only be one that will generate income, and in a crisis, only one that will generate short-term income. In addition, we are loyal to the Volkswagen group; we have been together for 30 years. We are consistent in that.

• What is the cooperation like with VW?
– Excellent. They are aware of the situation; they observe it through market shares. Our share is nine percent, which is why VW is satisfied. Opel and Volkswagen as brands are larger than us because we are not the only ones selling it.