The COVID-19 pandemic impact is anticipated to lower replacement/scrappage of existing vehicles in use – making the parc last longer – and bringing opportunity for repair and maintenance parts and components, according to research undertaken by GlobalData.
The COVID-19 pandemic is leaving a deep mark on the global automotive industry. While China may be in the process of recovery, the rest of the world is facing shutdown to combat the situation. The global impact of Covid-19,which was initially majorly on the supply-side, soon turned to the demand-side as most markets across Europe, North America and Rest of Asia witnessed lockdown. This meant a decline in footfalls in dealerships and eventually weaker demand for automotive products and related services. Customers globally have either parked or cancelled their vehicle purchase decisions as the governments emphasize 'social distancing'.
However, a much bigger impact will be witnessed on new vehicle sales as the economic after-effects – declining wages, disposable income and employment – kick in. And the aftermarket, a profitable area for many vehicle manufacturers, will be impacted, GlobalData's research suggests.
Research analyst Bakar Sadik Agwan says that global markets are expected to witness fewer new sales and slower replacement of older vehicles from the existing parc both in the private and the fleet segment making the existing parc's replacement cycle elongated.
"This after-effect tends to have a negative impact on OEMs, but on the flipside, it poses an opportunity in the aftermarket to generate substantial demand for replacement parts and consumables as older vehicles continue to be on road," he says.
The announcement of three-months relaxation to passenger car and commercial vehicle owners to get their annual vehicle worthiness test (MOT) by the UK government and inclusion of auto service and repair as 'essential' business by the US government signifies that the production and adequate supply for replacement parts and consumables should keep going even during the crisis. Consumables and wear and tear parts are expected to be the key beneficiaries among all aftermarket parts and components.
The pre-COVID scenario of GlobalData aftermarket analysis estimates revenue growth of consumables and wear and tear parts at 5.9% and 6.3% respectively between 2018 and 2020, globally.
"The opportunity exists – maybe not immediately – as the automotive supply chain disruptions due to COVID-19 has affected both the OEM and the independent aftermarket businesses. However, the opportunity may present itself once the world enters the recovery phase of the COVID-19 crisis," Agwan adds.