Diagonal Reports’ Global Aftermarket Panel (GAP) covers the automotive service aftermarket worldwide.
The GAP annual study tracks industry trends, demand for parts and services, company and brand performance, and compiles qualitative, detailed research on the fragmented service aftermarket. Research is totally original; all findings are based on interviews with marketing channel experts in each country.
The Diagonal Reports’ Global Aftermarket Panel (1999) interviewed 170 marketing channel experts representing more than 30,000 outlets, and 60 million service visits in 18 countries. GAP 1999 reviewed industry parts/services’ demand, and brand performance.
GLOBAL AFTERMARKET HIGHLIGHTS 1998
Best performing markets:sales in the service aftermarket are growing in the USA and Australia due to strong consumer confidence. Sales increase in Europe due to more the enforcement of more stringent regulations.
Worst performing markets: sales fell in Asia due to the economic recession in the region. Consumers drastically cut back on spending.
Best performing segments: franchises and authorised outlets are growing their share of high volume quick services and of profitable, complex services.
Worst performing segments: small and independent service outlets, which cannot modernise, are losing sales.
Leading companies: big name, established companies dominate the market due to their reputation for quality parts, brand awareness, warranties (guarantees) and service for customers.
Pricing: sector consolidation is putting pressure on prices everywhere. Competition lowers profitability in Europe, while price wars lead to undercutting in South Africa.
LOYALTY TO GENUINE PARTS
In the fast-changing global aftermarket loyalty to genuine parts varies, by region, country, market channel and consumer segment. However, some common brand-related issues emerge.
Here are some of the most important:
High loyalty markets
Globally, loyalty to genuine parts is highest in the most mature auto aftermarkets (e.g. the USA, Japan and Italy) and in the tied channel. This loyalty is due to strong brand image, a reputation for quality, and close buyer-supplier ties. Further, a “buy domestic” attitude maintains sales for local manufacturers in some markets.
However, even in mature markets genuine parts face strong competition in the fast growing service and retail franchises. In France and Australia own label brands are gaining share due to parts quality, competitive prices, and in some cases better service (e.g. delivery and warranties) than genuine parts companies.
Genuine and non-genuine – a disputed distinction
Loyalty to genuine parts is low in some of the largest new auto markets such as South Africa, India, and China. Loyalty will be hard to establish because the sector insists that there are no real quality differences between genuine and non-genuine parts.
South African experts are not alone in justifying the high, and open, usage of non-genuines.
Like their counterparts in Spain, they argue that the distinction between genuine and non-genuine parts is false. They note that car manufacturing companies outsource the production of their own “genuine” parts. Indeed some dismissed the term “genuine” as “a scam” by car makers to charge higher prices.
Genuine and spurious
In some markets, such as China and India, distinctions between genuine and non-genuine parts are less important than distinguishing authentic from spurious (counterfeit) parts. In these price-driven markets it will be hard for genuine parts to win market share because of the easy availability of cheaper non-genuine and counterfeit parts.
Loyalty to genuine parts:
- South Korea
- Hong Kong
- South Africa
PURCHASING & DISTRIBUTION CRITERIA IN THE GLOBAL AFTERMARKET
Parts purchasing criteria
Purchasing decisions in most of the aftermarket (service and distribution) are increasingly centralised, due to consolidation. The quality/ price mix is the leading passing criterion in every market, irrespective of outlets purchasing criterion in each of the 18 markets, irrespective of outlet type.
Independents tend to be somewhat more price-conscious than tied outlets, but it is never a case of “price at any cost”. Price consciousness heightens during a recession, particularly for high volume parts. However, even in the most cost-conscious markets (e.g. Egypt) quality over-rides price for safety-related parts, such as brakes.
Service can be decisive in a market where brand differentiation, in terms of quality and price, is thought to be minimal. The two main service issues are the availability of parts and replacement policies.
The reliable and speedy avvs and replacement policies.
Reliable and speedy availability of parts, generally “as-needed” delivery, is essential due to pressure on inventory and space. Efficient use of space will continue to be important due to parts proliferation. In South Africa theft, rather than space considerations, forces most outlets to keep stock to the minimum.
Replacement policies for defective parts are critical. Current policies by some manufacturers give rise to disgruntlement. India outlets complain that defective parts are not replaced and about the lack of a distribution service. In China manufacturers demand cash and outlets resent the lack of credit. Some continue to buy brands only due to consumer demand.
Distributors are the key to the independent sector. Service outlets change brands only when their distributor changes. In Japan, some service outlets simply order a part allowing their distributor to make the brand selection.
A MARKET IN TRANSITION : NEW TECHNOLOGY
New technology in cars is changing the aftermarket. However, servicing computerised and electronic components, and also complex safety and luxury accessories (e.g. airbags, air conditioning and audio systems) requires major investment by outlets in expensive equipment and tools, along with staff training.
Globally, large outlets such as dealerships and franchises, which can afford to invest in equipment benefit from the changes in the aftermarket. Dealerships affiliated to car-maker companies aggressively target the complex, high-profit service segments. This channel is the main beneficiary of extended warranties on cars and parts. Quick-service francons and convenient locations.
… and losers
Small, independent outlets, which still account for most of the market in many countries, are under intense pressure. They lack the capital needed for expensive equipment and staff training. However, consumers like the personal touch these outlets can offer.
Parts proliferation, due to the diversification of the vehicle park, continues. This increases pressure on inventory, stock control and space in both service and distribution channels. Fast (“as-needed”) delivery is becoming a leading purchasing criterion in every market.
Longer-life parts create parallel trends. They reduce the frequency of servicing requirements, but they increase the average age of the car park. The latter trend will grow service demand in the longer term.
The stricter enforcement of mandatory car safety tests, and more stringent environmental regulations, grow demand for test-related services and parts, especially in Europe and the USA.
The aftermarket in Italy is generally positive. Stricter MOT tests (revisions) grew business in 1999, but the car renewal campaign took a lot of older cars out of circulation. The high demand for MOT-related services and parts, and general check-ups will continue. The increasing number of electronic components and their greater complexity, will grow demand for these repair services.
The saturated service sector is consolidating. The big car makers are trying to lure customers away from independents. Dealerships benefit from increased sales of new cars because when cars and parts are under warranty consumers tend to take them authorised dealerships. Competition from fast-service chains (Norauto and Midas) selling easy-to-fit parts, e.g. windshield wipers and tyres, is increasing.
High loyalty to genuine parts
Genuine or premium (OEM) brands dominate the Italian aftermarket. Manufacturers maintain loyalty by offering long warranties, good discounts, and buying agreements, along with stringent check-ups to ensure compliance. Fiat is the top selling brand in almost all parts’ categories due to:
- the large number of Fiat cars,
- the brand’s reputation for quality and innovation,
- wide coverage of Italian car park (the brand can be fitted into almost all Italian cars),
- parts available in many different price points,
- strong loyalty by service outlets and car owners
The highly brand-aware Italian car owners maintain loyalty in the aftermarket, particularly in Fiat service outlets. One manager observed that Fiat clients are among the most intensely brand conscious: “It is the Italian mentality to want original parts. Clients pay more because they are obsessed with original parts.”
The market is changing and competition is heating up. Strong brand loyalty could erode if conscious becomes more price-conscious. New entrants, along with competition from non-genuine parts, are forcing parts’ prices down. Despite rising costs of labour service outlets cannot pass them on to budget-conscious consumers.
Further, many experts believe that there are minimal quality differences among the top brands and, more worryingly, that non-genuines offer comparable quality at a lower price. A Fiat outlet commented, ‘We must buy Fiat. Other brands may cost less and be just as good.’ Indeed, despite their protestations of loyalty, tied service outlets account for a large percentage of distributors sales. A distributor with 75% of sales to authorised service outlets noted that some 25% is to Fiat affiliated outlets.
The GAP covers the Americas (USA, Brazil, Mexico, Argentina), western Europe (France, Germany, Italy, Spain), Australia, Asia (India, Japan, South Korea, China, Hong Kong, Taiwan, Singapore), and Africa (South Africa, Egypt).
The following parts are covered:
- Brake pads and disks
- Shock absorbers
- Spark Plugs
- Fuel Pumps
For further details on this, and other reports contact Diagonal on: Tel: 353 405 49027 Fax: 353 405 41250. E-mail: email@example.com http://www.diagonalreports.com PO BOX 50, Enfield, Co. Meath, Ireland Vol. 2.No. 8. MCMXCIX Copyright © 1999 Diagonal Reports Ltd.