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:

High

  • USA
  • Japan
  • Italy

Medium

  • France
  • Australia
  • Spain
  • South Korea
  • Hong Kong

Low

  • Singapore
  • Taiwan
  • Egypt

Lowest

  • South Africa
  • India
  • China

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

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

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.

Winners

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

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

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.

Regulatory

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.

MARKET TRENDS

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.”

Dangers ahead

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:

  • Filters
  • Oils
  • Battery
  • Brake pads and disks
  • Clutch
  • Shock absorbers
  • Alternators
  • Spark Plugs
  • Wipers
  • Electrical
  • Ignition
  • Fuel Pumps

For further details on this, and other
reports contact Diagonal on: Tel: 353 405 49027 Fax: 353 405 41250. E-mail: diagonal@tinet.ie 
http://www.diagonalreports.com PO BOX 50, Enfield, Co. Meath, Ireland
Vol. 2.No. 8. MCMXCIX Copyright © 1999 Diagonal Reports Ltd.