Life is changing quickly for the people of Southeast Asia. In only 10 years, economic output has nearly tripled, and the rate of vehicle ownership has doubled across the region that includes Malaysia, Thailand and Indonesia.
According to World Bank figures, Indonesia’s GDP per capita increased from $1,076 to $3,557 per person over the 2003-2012 period, and the number of vehicles per 1,000 people rose from 19 to 42.
The statistics look similar in Malaysia and Thailand. Vehicles in operation will nearly double in Thailand over the 2013-2018 period, a country where pickup trucks outnumber passenger cars. In Malaysia —which has the highest rate of ownership in ASEAN at 350 per 1,000 people — GDP per capita grew from $4,427 in 2003 to $10,381 per person in 2012.
Altogether, the total light vehicle population will grow by 9.7 percent annually across all three countries — reaching 42.2 million passenger cars and light trucks by 2018.
As a result of this economic growth, Frost & Sullivan forecasts demand for maintenance products such as wiper blades, filters and brakes to grow at about 10 percent annually over the 2012-2018 period.
The growth potential is remarkably high, but there are also high barriers to entry – particularly for North American and European suppliers.
First, there is the vehicle population itself. In Thailand – the largest of the three countries with 10.3 million light trucks and passenger cars – Asian brands dominate the aftermarket. Toyota, Honda, Isuzu, Mitsubishi and Nissan account for about 80 percent of all vehicles receiving parts and service.
The scenario is similar in Indonesia, while Malaysia has a domestic auto industry based on OEMs such as Perodua and Proton, which are not widely distributed outside the country. Parts manufacturers, in particular, would need to spend significant sums developing new products to fit these vehicles.
However, suppliers specializing in Japanese brands are strongly positioned to grow in Southeast Asia given their high share of the market.
Second, average vehicle age is generally about 7.5 years, which is lower than in developed regions such as the United States (10.5 years) and Europe (9.4 years), and continues to decline as new vehicle sales dramatically outpace scrappage rates. It will probably take another decade for the ASEAN aftermarket industry to mature.
Although there is a large migration away from the OEMs to independent repairers after the first two years of ownership, there is also a proliferation of grey market, counterfeit replacement parts used throughout the ASEAN region, limiting market potential of OES and aftermarket products.
Finally, high inflation (4 percent to 5 percent annually) is driving up parts prices and maintenance costs for ASEAN motorists, making it more likely they will choose the cheapest available product.
Overall, it is difficult to find high-quality aftermarket parts in many parts of ASEAN, suggesting that many barriers to entry could be converted into opportunities.
As in many emerging regions, there is a lack of wholesale distribution (WD) channels throughout much of Asia, with a fragmented network of retail suppliers responsible for most parts sales to local service centers. There are few, if any, large distribution groups covering the region and, in some places, criminal gangs are believed to control sections of the automotive aftermarket industry.
About 80 percent of vehicle owners have their cars and light trucks serviced at independent repair facilities, with very few fast-fit service chains in the aftermarket. “Organized” service chains represent no more than 5 percent of the maintenance and repair volume, suggesting an opportunity to develop new businesses across the region.
It seems that the market growth potential is very high for parts and service providers that can develop distribution networks and service models catering to the region’s diverse vehicle population.
A Frost & Sullivan market analysis of key replacement parts shows that there is room for new competition. Generally speaking, there are two types of parts widely available, original parts from the OEMs and their suppliers, and counterfeit parts made locally or imported from China.
As a matter of fact, counterfeit products account for more than half of air filters sold in Malaysia and up to two-thirds of brake discs sold in Indonesia. There are also many small, local suppliers of radiators, clutch parts and other components competing with these imports.
Wiper blades are among the products that will enjoy the highest growth with unit shipment volumes nearly doubling to 28.2 million across all three countries in 2018. Bosch is the market share leader, with DENSO and Nippon Wiper Blade also capturing a high percentage of volume in Indonesia and Malaysia.
Remanufacturers are successfully penetrating the ASEAN aftermarket, with recycled auto parts such as starters and alternators already capturing high shares. Demand for starters is forecasted to increase from 1.4 million last year to 1.9 million in 2018, while alternator sales will grow from 1.6 to 2.3 million. Market leaders Bosch and DENSO only capture about one-third of total revenue.
Sales of vehicle accessories such as navigation devices, audio receivers and high-performance upgrades are also showing strong growth among the region’s young drivers.
But for complex products such as air-conditioning compressors, there is a growing need for aftermarket parts to capture market share from high-priced original equipment and low-quality imports.
There are also a few key regulatory developments for potential new entrants to keep in mind.
For example, government efforts to reduce fuel subsidies in Indonesia — where more than 100 million people live on less than $2 a day — could make driving too expensive for many residents and harm the growth potential of the automotive aftermarket.
In Malaysia, there is a National Automotive Policy in place to protect domestic automakers. Furthermore, most countries in the region also have policies to encourage the sale of small, fuel-efficient vehicles, supported by the ASEAN Free Trade Agreement to protect local suppliers.
In conclusion, the ASEAN automotive aftermarket offers attractive growth potential, but it is a difficult region to serve. The vehicle population is growing rapidly, but is still too small for many suppliers to profitably compete. There is a need for high-quality aftermarket parts, but current policies make it difficult for outside competitors to enter.
Over the medium- to long-term, parts manufacturers, distributors and service providers should develop e-retailing platforms if they want to participate in the ASEAN automotive aftermarket. Globally, e-retailing channels will account for up to 10 percent of all parts sales within seven years. Supported by on-board diagnostics and smartphone devices, future business models will allow vehicle owners to diagnose part failure, schedule service, purchase parts and receive special promotions from anywhere in the world.
Helping repair shops in the region to purchase parts online could help the ASEAN industry mature and give suppliers access to a new market with high-growth potential.
Editor’s note: Stephen Spivey is the Program Manager for Frost & Sullivan’s Automotive & Transportation Global Aftermarket research practice. He focuses on monitoring and analyzing emerging trends, technologies, and market behavior in the global automotive aftermarket. For more information on Frost & Sullivan’s Automotive & Transportation research, contact Jeannette Garcia, Corporate Communications, at [email protected].
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.
