More than 150 million more passenger cars and light trucks will be in use across China within five to seven years, driving exponential growth for vehicle parts and service in the world’s second-largest economy.
Frost & Sullivan’s latest research, Strategic Analysis of the Chinese Automotive Aftermarket, confirms the predictions of rapid industry development. By 2021, China will be home to more light vehicles than the United States.
Total Chinese light vehicles in operation will grow from approximately 135.6 million in 2014 to 282.0 million in 2021. By comparison, Frost & Sullivan forecasts 271.7 million U.S. cars and light trucks in 2021.
Urbanization – China’s new growth engine – will increase the incomes of rural-to-urban migrants and their consumption levels, allowing tens of millions of people to become vehicle owners for the first time.
Manufacturer-level parts revenue will grow by approximately 15 percent annually, from an estimated $27 billion in 2013 to $82 billion over the 2013-2021 period. The average vehicle age is only about three years, generating high demand for routine maintenance parts such as tires, batteries and wiper blades, among other products.
Although there are more than 11,000 auto parts manufacturers and 360,000 accredited car service shops competing in China, traditional aftermarket distribution channels are not common.
Most independent garages source products from so-called “auto parts cities,” which are similar to bazaars featuring groups of small, specialized distributors clustered together.
Counterfeit parts are widely available, presenting competitive challenges for new entrants, as consumer awareness remains low. E-commerce platforms like Alibaba’s Taobao and Tmall.com will play an important role in providing product knowledge to vehicle owners as well as helping parts and service providers build brand recognition.
Automakers and their franchised dealers compete in the 4S – shorthand for “Sales, Spare Parts, Services, and Survey” – channel, which is the equivalent of OES in other regions. It is the main service channel in China, capturing an estimated 45 percent of retail service revenue.
In total, there are more than 100 vehicle brands in use across the country, with Volkswagen (10 percent) and Chinese OEM Wuling (7.6 percent) as the two largest.
Although doing business in China is never easy, the government has recently taken steps making it more convenient for consumers to access the parts and service they need. New guidelines allow authorized dealers to sell OEM parts to independent garages and consumers, which should increase the overall quality of products available in the aftermarket. Bosch now operates 1,300 workshops in China, as well as an online flagship store on Alibaba’s Tmall.com.
Suppliers of branded aftermarket parts are poised to grow as an alternative to high-priced OE parts and low-quality counterfeit components, as consumer awareness and education grows among China’s new vehicle owners.
China is a market that is too big to ignore. Suppliers that can figure out how to set up operations here – whether it is through joint venture, online store or exports to emerging distribution groups – will enjoy higher growth potential in the global automotive aftermarket.
Will Wong is a research analyst for Frost & Sullivan’s Automotive & Transportation practice. For more information on Frost & Sullivan’s Automotive & Transportation research, contact Clarissa Castaneda, corporate communications, at [email protected].
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.
