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October 22, 2004

UK: Analyst sees major European aftermarket consolidation within five years

Independent market analyst Datamonitor estimates that 30,455 European repair/franchised/independent repair centres will close within the next five years.

By bcusack

Independent market analyst Datamonitor estimates that 30,455 European repair/franchised/independent repair centres will close within the next five years.

The firm’s “Aftermarket Database,” says that profits in the European aftermarket, currently worth €124 billion, will decline to 1998 figures, €121 billion, in five years, which will trigger consolidation.

Datamonitor said that Europe’s aftermarket players enjoyed strong market growth and high profits in the ‘90s but margins have now been eroded significantly and growth rates have fallen dramatically as technology changes have affected car maintenance. Over the period 1998-2003 there was almost no growth in the value of the aftermarket (0.7%).

Better quality car parts on new cars are lasting longer and needing replacement far less frequently. For example the average life of a battery has increased from 2 to 4 years. Competition in the market is also having a negative impact on prices.

In the retail side, Datamonitor estimates that the number of repair centres will decline by almost 9% between 2003-2008. Currently, there are 353,673 repair centres. By 2008 the number will have fallen to 323,218. Fast-fit and autocentres, due to their mass and scale have been able to undercut independents on parts prices and services further limiting the scope for growth.

These factors together with the European market being highly fragmented in make up, makes it ripe for consolidation. In addition, the European Commission has set certain rules to free the market to greater competition from independent aftermarket suppliers. This will continue the trend towards consolidation in the aftermarket, another factor which will result in fewer players in the sector but greater focus on consumers’ needs.

This process has begun in earnest, with a series of consolidatory moves occurring in recent months: Dana – one of the world’s largest car parts manufacturers – announced its withdrawal from the aftermarket, Fiat sold its Midas fast fit operation to a competitor, whilst MG Rover has offloaded its aftermarket parts business to its logistics provider. Last week the Automobile Association in the UK announced its exit from the car servicing business to create a more efficient, streamlined and profitable company. The company is to sell 50 AA Service Centres to Nationwide Autocentres – the UK’s leading garage servicing chain. The remaining 72 sites will be closed. The company will also close AA Tyre Fit – a mobile tyre fitting service – and its vehicle inspections business.

However, Datamonitor says there are still opportunities within Europe which still promise strong growth. For example, players can specialise. Datamonitor cites the example of Halfords. With intelligent management it has experienced a strong performance despite a weak aftermarket. Much of this performance is based on Halfords having moved away from car servicing and instead, specialising in car accessories and the tuning sector. A niche market has enabled them to compete on price and goods.

Datamonitor automotive analyst, Nieves Vecina-Jimenez, said: “The steady flow of profits from the market for replacement car parts and maintenance/repair services has come under pressure from increased competition in a mature market, and from changes within the market. Players in the European aftermarket business need to determine their targeting strategy based on the potential opportunities. In short, consolidate, specialise or die.”

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