The car aftermarket remains resilient in spite of recession
Published:08-April-2009
By Datamonitor staff writer
The current economic turmoil is hampering the automotive sector but the aftermarket, while not completely unaffected, remains resilient. However, key aftermarket players are having to face up to uncomfortable challenges, with the commodities price bubble boom and bust, severe pressure on consumer spending, low cash flow levels yielding insolvencies, and global car registrations in reverse.
As global leaders discussed the financial crisis at the G-20 summit, a decision was made to undertake a $1 trillion capital injection. While the global automotive market is suffering and will hope to benefit from this decision, the car aftermarket has proved to be more robust and adaptable. In 2008 the global aftermarket was up 2.7% on the previous year, approaching a value of E631 billion. Furthermore, it is set to grow by 9.5% over the period 2008-2012.
Despite this buoyancy, the ongoing financial crisis will confront the major industry players with a variety of challenges. In mature Western European markets this is already taking place, as open competition has enabled wholesalers to gain ground on vehicle manufacturers (VMs), in part courtesy of the Block Exemption Regulation (2001). As the "cash-rich time-poor" pool of consumers dwindles, new challenges have appeared at both the strategic and structural level.
In the first half of 2008, leading players from each level of the supply chain had to disseminate the pressure of inflated raw material prices, while fiercer competition brought further room for consolidation. The growing pressure on consumer spending also made it increasingly difficult for VM networks, traditional channels and premium brands to stimulate demand.
However, in spite of the structural changes the industry is facing, the key determinant of the aftermarket remains the car parc growth. At a global level the car parc is forecast to continue growing, climbing by 8.6% over the next four years. This masks falling global registrations (down by 6% in 2008 and more in 2009), which acts as a key indicator of the economic crisis. Limited access to credit has weakened new car sales and shifted the focus for VM networks from sales to service, as motorists are likely to keep their vehicles for longer.
With an ageing car parc, non-discretionary spending becomes a key segment of the aftermarket, with mechanical, and wear and tear parts revenues forecast to increase by 5% in all regions at a global level. While the ageing car parc presents a threat for the VM networks, there is an opportunity for them to mitigate this by developing their sub-brand strategies (such as Renault with its brand Motrio) and improve the retention of post-warranty motorists.
The decline in disposable income also transpires into a reduced average mileage. Because of the more immediate recessionary effects in the developed regions, more mature markets are expected to witness a reduced average spend per car. Conversely, markets where aftersales remain nascent can expect increases. Unfortunately, consumers are unlikely to have felt the full impact of the recession, as dwindling inflation levels and low petrol prices are being used to nourish consumer spending temporarily.
The 2008-2009 cold winter benefitted aftermarket players, as it stimulated strong aftersales of seasonal items (batteries/anti-freeze/winter tires), despite a growing level of uncertainty for the 2009 sales outlook. As drivers seek out less expensive solutions for servicing their cars, brand loyalty begins to fade. At first glance, fast-fit centers are expected to gain ground, as this modern distribution channel remains competitive. The other solution, involving VM networks' commitment to competitive sub-brand strategies (Motrio, Eurorepar), also remains rewarding.
So what next for the automotive aftermarket in 2009 and beyond? The main challenges for leading players include cost reductions and the more delicate task of restoring consumer confidence. Datamonitor believes that the winners in the service market in the current economic crisis could be the modern distribution channels and the competitive independent workshops, as these will benefit from a wavered brand loyalty hitting VMs' dealerships. Indeed, while M&A activity continues to transpire, price increases have been absorbed at each level of the supply chain, placing a growing pressure on retailers. Consequently, a significant amount of point of sales are expected to close.
To conclude, Datamonitor forecasts that the vanishing inflation is not expected to outlast the year, as retail prices are expected to recover by 2010. As economic woes begin to subside, replacement rates and volume sales are anticipated to pick up.
