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Strategic Analysis of the Chinese Automotive Aftermarket : Nearly 150 Million More Vehicles Will Require Parts and Service

  • 83 pages, published in February 2015
  • By Frost & Sullivan
  • Report Number: 2719839

Summary

Table of Contents

Key Findings

China will have the world’s largest number of vehicles in operation (VIO) by 2021, making the automotive aftermarket a high-growth industry over the short, medium, and long terms.

The total light vehicles in operation will grow from x million in 2014 to approximately x million in 2021, eclipsing the forecasted US VIO of x million. Manufacturer-level revenue will grow at a compound annual growth rate (CAGR) of x % between 2013 and 2021, reaching $ x billion by the end of the forecast period.
The average vehicle age is no more than x years, generating high demand for routine maintenance parts such as tires, batteries, and wiper blades, among other products.
Traditional aftermarket distribution channels are not common in China. Most garages source products from so-called “auto parts cities,” which are areas featuring groups of small, specialized distributors clustered together, and may include counterfeit components.
Original equipment suppliers (OES), which include automakers and their dealerships, account for almost x % of retail service revenue, while independent workshops capture about x % of the maintenance and repair business. However, recent regulatory actions by the Chinese government will make the industry more competitive in the coming years for independent workshops and parts suppliers.
Volkswagen and Chinese automakers Wuling and Changan are the largest participants, along with Internet giant Alibaba. eCommerce channels such as Alibaba will play an important role for foreign suppliers to develop brand loyalty with Chinese consumers.

Vehicle Sales and VIO by Type
The stable growth of vehicle sales and the double-digit growth of VIO would represent huge opportunities for the automotive aftermarket.
•Vehicle sales are expected grow at a CAGR of x % from 2013 to 2021 after strong double-digit growth in 2009 and 2010.
•From 2013 to 2021, large-plus cars, sports cars, and sport utility vehicles (SUVs) will have the highest expected sales growth among the types of passenger vehicles (PVs), while pickups will have the highest expected sales growth among light and mini commercial vehicles (LMCVs).
•PVs are expected to represent more than x % of the VIO due to the increasing market share of PV sales.
•The strong sales’ growth of large-plus cars, sports cars, SUVs, and pickups would boost the population of these vehicle segments.

Vehicle Age and Vehicle Kilometers Travelled
The average vehicle in China is only about x years old and travels approximately x kilometers annually.
•The car sales boom in 2010 resulted in a vehicle age range of 0 to x years in more than x % of the VIO in 2013.
•The average warranty period for vehicles in China is typically x years. This indicates that more vehicles will be out of warranty after 2013.
•The percentage of vehicles older than x years is expected to increase at a CAGR of x % from 2013 to 2021.
•Government policies and the development of public transport are expected to reduce the amount of vehicle kilometers travelled (VKT) significantly from 2013 to 2017.

PESTLE Analysis

Political, economic, and social factors will favor growth for the Chinese automotive aftermarket.
The Chinese government aims to decommission x million older or “yellow label” vehicles in order to mitigate the air pollution problem.
Although many of the legislative schemes are only guidelines and lack the full force of regulation, they are expected to have a significant effect.
Emerging Internet users and eCommerce platforms such as Alibaba’s Taobao and Tmall.com are expected to change the business model of the market.
Anti-monopoly actions against the auto industry are expected to positively impact the replacement parts market and maintenance and repair services.
GDP is expected to have a CAGR of x % from 2012 to 2021. Although economic growth is expected to be stable, the impact on the automotive aftermarket will be low.
Consumers are demanding higher quality products and services, but consumer education is needed.

Current Outlook (2014)
The auto parts manufacturing and auto services markets are fragmented, and there is no leading brand among the service shops.
Original equipment manufacturers (OEMs) have strong bargaining power for high-quality replacement parts. Counterfeit parts suppliers dominate the low tier of the aftermarket used by owners of older vehicles.
4S shops are the main channel that provide maintenance and services; hence, OEM parts are the main replacement parts.
eCommerce is emerging as a new shopping channel, which benefits different markets.
Vehicle owners are demanding higher quality products and services, but they have limited product knowledge and low brand awareness.
Parts suppliers still have some difficulty in entering the independent aftermarket (IAM) due to the OEMs’ strong bargaining power and the lack of distribution infrastructure.

Future Outlook (2021)
Only a few small-scale auto parts manufacturers can survive in the market due to their low product quality. Fast-fit repair shop chains will be the biggest threat to 4S (OES) shops.
Increased investment in Sino-foreign ventures to bring new levels of competition featuring high-quality aftermarket parts, service centers, and full-line distributors.
End users have more rights to choose the service channels among dealers and independent workshops and also have more rights to choose among OEM parts and non-OEM parts.
eCommerce will become the largest channel to reach vehicle owners directly due to the lack of retail auto parts stores.
Increasing competition creates more product/service options, requiring participants to offer more value to consumers and installers.
Favorable legal treatment from the Chinese government will reduce entry barriers. Joint ventures with Chinese partners are still required.

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