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Digitization of services to enable more profitable customer engagements over the extended length of vehicle ownership

Slow and steady has been the leitmotif of the global automotive passenger vehicle aftermarket. In keeping with such trends, revenue growth continued at the 4%-5% mark for the third consecutive year in 2018. However, the market is due to be shaken out of its stupor. Frost & Sullivan’s Global Automotive Aftermarket Outlook, 2019 identifies a clutch of digitally driven innovations that are set to disrupt traditional customer acquisition and service delivery paradigms, thereby transforming the entire market.

In the more immediate future, however, incremental growth will characterize the market. Overall revenues are estimated to expand to $421.9 billion in 2019 from about $405.70 billion in 2018, reflecting a compound annual growth rate (CAGR) of around 4.2% in 2019. The bedrock of this growth will be the 3.7% growth in light vehicles in operation (VIO) in 2019, which will generate revenue opportunities from replacement demand. Meanwhile tapering revenues from developed markets will be offset by strong performances from India and China which, although slower than last year, will continue to be the growth engines for aftermarket replacement revenue during 2019.

Top Five Trends in 2019

Despite the continued uncertainties caused by the ongoing tariff wars and Brexit, the market will experience positive trends in the form of greater digitization, the increasing number of miles being driven, and the rising uptake of SUVs and pickup trucks.

The rising popularity of SUVs bodes well for the aftermarket. During 2018, SUV sales rose by 7.2% year-on-year in the US alone, ramping up the share of SUVs among total VIO to at an all-time high. In addition, compact SUVs will continue gaining momentum in emerging markets.
The rising sales of SUVs and pickup trucks worldwide will increase spending per vehicle. Ripple effects will be felt particularly in terms of higher demand for tires and brakes, even as opportunities for accessories expand.
In a not so positive development, trade related tensions and the continued impasse over Brexit will negatively impact major economies, including the UK and Germany. Businesses importing/exporting replacement parts will bear the brunt of such trade imbroglios.
The market will need to brace for the massive transformation that will be unleashed by the digitization of in-vehicle services. Almost $350-$400 million worth of vehicle service jobs are likely to be booked online from service marketplaces in 2019. This ‘uberization’ of vehicle services will benefit original parts dealerships, independent vehicle servicing workshops and customers. Leading the charge will be the UK and Germany.
The aftermarket will benefit from a projected 1.5%-2.0% increase in average annual miles driven across most markets. This will be a result of improving road infrastructure in developing markets like India and China, and will be buttressed by the widening use of shared mobility alternatives in other major markets around the world. Collectively, this will boost demand for aftermarket replacement and services.

Top Five Trends for 2019 and Beyond

Frost & Sullivan has also identified five defining trends whose impact on the automotive aftermarket will be felt not just in 2019 but over the long-term as well:

Currently, the US alone has nearly 60 million advanced driver assistance systems (ADAS) equipped vehicles plying on its roads. The number of ADAS enabled vehicles in the vehicle parc is set to expand rapidly. This will benefit workshop and equipment providers since it will mean greater demand for recalibrating ADAS related equipment, such as front facing cameras, front facing radars, ultrasonic sensors, and steering angle sensors.

Currently, most recalibration work is currently carried out at dealerships. As the market matures, it will open up growth opportunities for independent aftermarket (IAM) participants. On the flip side, it will also create challenges for them as most OEMs have their own set of specifications for sensor calibration. Simultaneously, due to the changing nature of collision repair for ADAS equipped vehicles, additional investments in tooling will be required.

Data monetization will enlarge its footprint in the aftermarket ecosystem. The explosion of new business models and participants—including aftermarket-focused data brokers and the emergence of service marketplaces—are reflective of this trend. Data exchange between segments will become more transparent and help both customers as well as companies across the value chain. For example, smart contracts and data mining are proving invaluable for the IT services industry.

Shared mobility concepts will upturn conventional patterns of vehicle ownership. This, in turn, will change the way drivers spend on vehicle servicing, even while underlining the need for new service models. It will create opportunities for IAM service providers to approach customer acquisition and service efforts in a more targeted manner. Workshop services, maintenance services, breakdown services and ancillary services are well positioned to leverage this trend.

Blockchain has been widely hailed as a revolutionary technology whose transformative impact will be experienced across the automotive value chain, from B2B and B2C spheres to service and maintenance functions, from IAMs and original equipment suppliers (OESs) to logistics, finance, and insurance verticals. Its initial applications will be in supply chain management, payments and parts authentication. It will prove particularly useful in parts authentication through “Digital Twining” since this holds the promise of substantially reducing the presence of counterfeit parts in the aftermarket supply chain.

In 2018, eCommerce behemoths like Alibaba and Amazon moved aggressively to expand their presence in the automotive aftermarket. Motivated by the long-term objective of upselling through its eCommerce platform, Alibaba partnered with global and Chinese OEMs. Meanwhile, Amazon’s strategy rested on digitizing the traditional car buying process, and leveraging telematics and voice-based Alexa applications to create more targeted recommendations for users.

As both Alibaba and Amazon continue with their ambitious plans, one key commonality has been their efforts to integrate their voice assistants with different OEMs. This is seen as central to building an extended customer engagement strategy. The implications for the aftermarket are tremendous: the creation of in-vehicle sales platforms on company owned marketplaces such as amazon.com or tmall; the ability to provide more convenient customer purchase experiences; and, the facility to personalize brand promotion strategies.

Top Five Strategic Recommendations

The automotive aftermarket is poised to transform in 2019. As this happens, participants across the value chain need to be prepared for the challenges and opportunities that lie ahead.

Traditional stakeholders should focus on partnering with new entrants in order to more closely integrate offline and online services. This will enable an enhanced user experience and fully leverage the growth potential represented by B2B eCommerce.

They should recognize that digitization of vehicle services across the spectrum from booking to delivery will be a revenue spinner. It will enable aftermarket participants to engage with customers over the extended length of vehicle ownership.

Workshops should work to tap into the revenue potential arising from ADAS technologies and alternate powertrain systems. Upgrading and adapting workshops will be critical to meeting these new service demands.

In 2018, mergers & acquisition activity resulted in the continued consolidation of distributors, particularly in Europe. This put pressure on supplier profits and margins. Direct selling and renewed channel participant engagements will be crucial to overcoming the challenges presented by distributor consolidation.

Data is the new gold. Therefore, aftermarket participants should prioritize investments in data analytics in order to develop innovative and effective solutions for their customers.

For more information on the Global Automotive Aftermarket Outlook, 2019, please write to Anuj Monga, Program Manager- Aftermarket Mobility, Automotive & Transportation at anujm@frost.com

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