The automotive aftermarket industry is going through tremendous changes with the growing consumer demands, acceleration of technological advancements, and changes in competitive power. These shifts reshape the way automotive suppliers, consumers, and other aftermarket manufacturers think of automobiles and driving. Furthermore, it’ll also determine how business in the automotive aftermarket is conducted and value is created.
On the other hand, the developing markets will establish new demands and pressure to act for the automotive aftermarket industry. Subsequently, its players will face challenges due to the fast-paced industry consolidation, particularly in Europe and North America. Additionally, automakers that have long been operational in a stable environment will face new competitive pressure from other automakers and new entrants that follow the digital-driven business models.
In order to gain a competitive advantage over fellow competitors, automotive manufacturers will have to adopt new technological solutions and major shifts in the aftermarket industry. This starts with an evaluation of the key trend’s impact on individual companies and determining a robust strategy for the future.
The Automotive Aftermarket Industry: An Overview
The automotive industry is one of the leading sectors worldwide that is playing a crucial role in bringing growth back to the world’s economy. The industry accounts for more than USD 1 trillion with the present rate of over 95 million annual units, including automobiles and trucks. The aftermarket is a part of the automotive industry that comprises the automotive services and components businesses.
The global automotive aftermarket is expected to reach USD 722.8 billion by the end of this year. The automotive service business contributes around 45% of the overall aftermarket revenues in Europe, while the components business generates the remaining around 55%. In the last five years, the global automotive aftermarket industry has shown steady growth and margin. By 2030, the aftermarket will value at around USD 1 trillion, expanding at a CAGR of 3%.
Driven by China, Asia will be the leading growth factor in the global automotive aftermarket in the coming years. With China’s accelerating economy behind the growing rate of vehicle ownership, it is expected that the country will lead by the end of 2020 in terms of the vehicle population. Essentially, the service segment will grow in China, primarily because of the growing average age of the vehicle population. With the average vehicle age in the country relatively young at 4.5 years, it is expected to increase at an unprecedented rate and soon.
Subsequently, in the consolidated markets of North America and Europe, the growth rates of the vehicle population over the last decade were below 2% p.a. Similarly, the average vehicle age in the U.S. increased from 10.5 years to 11.8 years and from 8.4 years to 9.7 years in Europe. These factors pinpoint the growing need to manage older vehicle segments. However, the automotive aftermarket is expected to reach USD 409.29 billion in North America and approximately USD 360 billion in Europe in 2030, expanding at a CAGR of around 1.5%.
Competitive Landscape: Global Automotive Aftermarket Industry
Continental AGContinental AG, also known as Continental, is a German multinational automotive parts manufacturing company that specializes in automotive safety systems, interior electronics, powertrain and chassis parts, tires, brake systems, hoses, tachographs, drive belts, conveyor belts, and other components for the automotive and transportation industries. The company reported USD 49.816 billion in revenue in 2019.
For the first time, the company is providing a free and comprehensive online platform to list its products and brands. This will enable workshops and dealers to rightly select the spare component from the range on offer. The right person can be available to answer all your queries related to a particular product, along with explanatory and product videos.
The 3M Company is a U.S.-based multinational conglomerate specializing in the fields of worker safety, healthcare, consumer goods, and automotive aftermarket. The company recorded USD 32.136 billion in revenue in 2019.
In September 2019, 3M’s automotive aftermarket division celebrated nearly 100 years of automotive manufacturing repair excellence. In the same year, the company launched a new app designed to enable technicians and distributor sales employees to get a better understanding of collision repair on their mobile devices. Available on the Apple App Store, this tool provides free access to collision repair product information, application videos, guides, and standard operating procedures.
Formerly Delphi Automotive PLC, Aptive PLC is a U.K.-based company that designs, develops, and manufactures, and sells vehicle propulsion systems to original equipment manufacturers (OEMs). The company’s product line includes gas and diesel fuel injection systems (FIS), sensors, power electronics technologies, valvetrain products, and electronic control modules.
The aftermarket segment offers aftermarket products to independent aftermarket and original equipment service customers. Moreover, it offers aftermarket products and services covering maintenance and test equipment, fuel injection, vehicle diagnostics, and electronics and engine management categories. The company's annual revenue for 2019 was USD 14.357 billion.
Federal-Mogul Corporation is a U.S.-based company specializing in the manufacture, supply, and distribution of automotive parts. The company’s product line includes pistons, piston pins and rings, sintered metal products, cylinder liners, and light metal castings. The company offers piston rings for vehicles, including suburban utility vehicles (SUVs), bi-wheelers, commercial vehicles, passenger cars, locomotive engines, tractors, and stationary engines. It also provides solutions for OEMs and the automotive aftermarket.
In October 2018, Federal-Mogul Corporation was acquired by automotive aftermarket and OEM Tenneco for a staggering USD 5.4 billion. In February 2016, the company was awarded for excellence in supplier delivery performance by Volvo Group. The company recorded revenues of USD 11.8 billion in FY2019.
Denso Corporation is the world’s fourth-largest and Japan’s leading manufacturer of automotive components. The company’s product line includes air conditioners and heaters, filters, fuel management systems, and electrical and electronic control products. GM leaders acknowledged Denso as a model for its spin-off Delphi Automotive. More than 50% of the company’s products got to Toyota Motor Corporation (TMC), which owns over20% of Denso’s stock. Denso also supplies several U.S. automakers such as GM, Ford, Chrysler, European manufacturers such as BMW, Fiat, and Volvo, and all other Japanese automakers.
Denso Corporation generated around USD 48.2 billion in revenues in FY2020. In July 2019, the company announced a joint venture with Toyota Agre for advanced R&D of next-generation, in-vehicle semiconductors. The joint venture will enable the companies to develop electronic components by implementing semiconductors for EVs and periphery monitoring sensors for automated vehicles.
Magneti Marelli S.p.A. is an Italian developer and manufacturer of components systems and modules for the automotive industry. The company specializes in manufacturing electronic fuel-injection systems, on-board information and communication systems, cockpit modules, lighting units, suspensions, and exhausts. The company employs 60,000 people worldwide, with 170 facilities and R&D centers across Europe, Africa, Asia, and the Americas. Marelli generated revenues of USD 16.29 billion in 2019. CK Holdings Co., Ltd completed the acquisition of Magneti Marelli S.p.A. in May 2019.
Robert Bosch GmbH is a German multinational engineering and technology company that specializes in providing auto spare equipment, industrial products, and home appliances, as well as energy, business process outsourcing, building, and drive and control technology solutions. The company generated revenues of USD 94.42 billion in FY2019.
Key Trends in the Automotive Aftermarket Industry
The increase in the average age of vehicles has been a positive trend in the automotive aftermarket industry for a long time, and the trend has accelerated largely over the last six years. Currently, it stands at a staggering 11.8 years for passenger cars and light trucks together, accounting for a 4% increase over the last five years.
Many wonder why pickup trucks have a low shelf life compared to cars. Light trucks are more likely to undergo wear and tear compared to passenger cars as they are mostly used for towing, carrying heavy loads, and off-road fun. Moreover, they are used in commercial situations that result in high levels of use and abuse. In any case, the average age of vehicles is expected to reach a record high in the coming years, in part because older vehicles are holding so well.
According to a study by the IHS Markit, the number of vehicles that are at least 16 years old will increase by 22% from 2018 to 2023, reaching 84 million. That would mark an increase from 35 million in 2002.
The increase in the number of vehicle registrations across the globe continues to pressure OEMs to accelerate the need for using modular architecture and global vehicles. Looking at the overall vehicles in operation, the number reached 1 billion units in 2010 and is expected to be around 1.5 billion vehicles by the end of 2020.
This unprecedented growth translates into a growing need for OEMs to manage costs and heightened global production. OEM manufacturers are accelerating the use of global platforms and looking to produce more units per platform. Furthermore, they’re also introducing modular architecture. By regularizing the architecture of the engine compartment, driver cockpit, and underbodies, OEM manufacturers achieve greater elasticity and can utilize uniform components.
Lesser platforms, an increase in the number of vehicles per platform, and the accelerating use of modular architecture will result in the use of similar parts and the ability to sell the same aftermarket product in different regions in the world, which is a major opportunity for the suppliers of the automotive aftermarket.
The digitalization of channels will impact more on the research and purchase processes of the customers in emerging as well as developed markets. Customers prefer shopping from online platforms and look for reviews to improve their shopping preferences. Several online platforms sell components. OEMs, workshop chains, suppliers, and distributors will continue to increase their online participation and launch new platforms.
It is expected that the e-commerce share of components sales will increase to at least 20% by 2035, a figure which is likely to increase. Contrastingly, windshields and airbags, which are hard to transport, will likely to be sold through the traditional OEM or IAM wholesale channels.
Digital channels will allow aftermarket players to further increase the industry’s overall value as connectivity enables them to move close to the consumer and generate big data. Moreover, with the automation of cars, tech giants or start-ups might generate more profit. Conventional workshop chains, components manufacturers, and distributors potentially come under pressure as online platforms, OEMs, and intermediaries may try to have a greater impact on customers, resulting in the shrinkage of the players’ margins accustomed to having the full attention of these customers.
Besides, given the shorter value chain, as trade steps are omitted, some manufacturers have an optimistic approach and expect margins to remain steady or even grow as the margin of distributors and intermediaries will be divided among online platforms, customers, and components manufacturers. Moreover, workshop chains and components distributors can seize the opportunity and increase their presence in the market. This can be done through collaboration, consolidation, and professionalism. On the other hand, new profit tools and lucrative opportunities will be created by intermediaries, who connect customers and services.
The Bottom Line
With regards to the future market developments, the rising trends and the current economic scenario will state that there is no conventional path for achieving success. Leading aftermarket players will have to break down through their conventional course of action and develop more unique selling products, simultaneously focusing on the consumers’ changing requirements. One major factor in this can be looking for new joint ventures and collaborations that will add value to the supply chain directly or indirectly. Furthermore, focusing on the constantly developing service innovations will play an important role in the growth of automotive aftermarket in the coming years.
Whatever the future situation of the automotive industry will be, robust investment in the aftermarket will play an integral role. OEMs and aftermarket providers will continuously face challenges and will be needed to change their business models. Being a global automotive aftermarket leader becomes a crucial success factor for delivering exceptional business results.