Spanish aftermarket is mature, well-developed

Aug. 20, 2015
Spain is the second largest producer of motor vehicles in Europe, with more than 2 million units produced annually. From a new car sales perspective, Spain’s automotive recovery has already begun.

Since the 2nd century B.C., Hispania, as it was then known, has had a diverse and unique multicultural flavor that was founded on trade. Greeks, Romans, Celts and many others contributed to what was the early development of modern Spain.

Today, Spain is a country of 46 million people, and a significant member of the European Union. While the country has embraced the 21st century with modern industries and infrastructure, you don’t have to look far to find vestiges of the old ways. Throughout most of Spain, ancient traditions like the afternoon siesta are still observed, and for the most part are a cherished part of the culture. But traditions aside, Spain has embraced modern living, and automobiles are a big part of the economy and the daily lives of most Spaniards.

Spain’s gross domestic product (GDP) of approximately US$1.56 trillion is good for 16th place in the world. This puts their economy roughly on par with that of Canada, but with nearly twice the population. Spain’s economy and banking sectors were hit hard by the Great Recession. Housing values took a steep tumble in 2009, and the market has yet to fully recover. Spain is often cited, along with Greece, Ireland and Italy, as the trouble spots of the Eurozone. Spain has significantly less sovereign debt than Greece, and it is widely acknowledged that the greatest period of risk has already passed. But the situation continues to improve daily.

A continued European recession has hit Spain’s biggest industry, tourism, particularly hard. With Europeans tightening belts since the recession hit, Spain’s GDP shrank from 2008 through 2013. This was mostly a result of decreased tourism demand and a steep decline in home building in the vacation home sector of the economy. Spain’s economy is weighted towards services, with 70 percent of the economy being services related. Only 24 percent of Spain’s GDP is manufacturing related.

However, Spain is the second largest producer of motor vehicles in Europe, with more than 2 million units produced annually. From a new car sales perspective, Spain’s automotive recovery has already begun. According to the European Automobile Manufacturers Association (ACEA), new light vehicle sales were up more than 22 percent in the first four months of 2015, and commercial truck sales growth of 35 percent led all of Europe during the same period.

In 2014, the economy began to grow again, albeit at a slow 1.4 percent rate. This has impacted the growth of the motor vehicle population, which remains at about 27 million cars, trucks and motorcycles.  Prior to the Great Recession U.S. exports of auto parts and accessories totaled more than US$266 million. By 2009, that number had fallen to just over US$113 million. Since then, U.S. exports have begun to climb again. In 2012, U.S. exports of auto related parts and accessories totaled just over US$160 million, and that number is expected to grow by about 3 percent to 5 percent a year.

“Even at the height of the recession, Spain’s automotive aftermarket sector remained dynamic. As the economy continues its recovery, the steady growth of the automotive sector in Spain, combined with the solid reputation of U.S. automotive repair and maintenance equipment, should continue to provide opportunities to U.S. companies,” says Carlos Perezminguez, a senior international trade specialist for the U.S. Commercial Service, based in the U.S. Embassy in Madrid.

The growth in automotive parts and accessories exported from the U.S. can be attributed to two key factors. Sophisticated engines and vehicles require equally sophisticated diagnostic tools and equipment, as well as electronic components that can’t be easily duplicated in low-cost countries. The reputation of high-tech U.S. suppliers greatly enhances the value of U.S. exports, and they are often the first choice of installers seeking quality parts and equipment.

Says Perezminguez, “In the auto repair and maintenance market, the majority of end-users still consider quality and price as the most important factors governing purchasing decisions. Training and after-sales support services are two other factors that influence purchasing decisions among Spanish automobile repair professionals and end-users and these factors should be taken into account when attempting to introduce new automotive products in Spain.”  Those factors play to strengths of U.S. manufacturers.

The other key factor driving growth of U.S. exports is the popularity of “tuner” cars in Spain. Like elsewhere in the world, car enthusiasts in Spain have embraced the thrill of customizing their cars to gain an edge in performance and speed. Many U.S. suppliers of these “tuner” parts have seen increased market shares in Spain during the past five years.

The majority of cars sold in Europe are often equipped with smaller engines. You would be hard pressed to find anyone buying cars with engine sizes greater than 2.0 liters. The reason for this is the high taxes on large engines and even higher cost of fuel in Spain, where gas prices averaged about $5.40 per gallon in July 2015. So after buying cars with smaller engines, enthusiasts often go to aftermarket suppliers to gain performance on their vehicles. This has been the driver of growth in the “tuner” market.

The structure of the Spanish aftermarket is considered to be mature and well developed. Like the U.S., the two primary channels for car repairs are either through manufacturer authorized service dealers (OES) or through independent aftermarket repair facilities. Spain differs in that new car dealers hold a much higher share of car repairs than new car dealers do in the U.S., estimated at just above 50 percent of the aftermarket. And that trend will hold true for most of Europe.

The Spanish independent aftermarket (IAM) looks very much like a two-step distribution model in the U.S. Manufacturers of parts and equipment sell through either independent distributors or program distribution group members. These distributors then will sell to either franchised repair facilities, independent garages or to “fast-fit” installers, which would resemble a Quick Lube type installer in the U.S.

According to Ana Loscos, sales & marketing director of Airtex, S.A. (the Spanish affiliate of UCI-Fram Autobrands), the recent recession has led to consolidation in the ranks of distributors. This also has led to a drop in imports from low-cost countries in Asia. According to Loscos, those imports are down because “distributors [have] reduced significantly inventories, and are looking for fast service from local manufacturers.”  This trend has also been driven by exchange rate concerns. Loscos says, “The Euro exchange rate is under-performing all year and the experts say that [the market] will ultimately be driven to parity,” in terms of cost of importing versus buying local.

U.S. manufacturers who are seeking distribution in Spain would do well to partner with someone in the wholesale distribution tier. Like in North America, buying groups have become prevalent throughout Europe. One Spain-based supplier remarked that distributor consolidations and the emergence of buying groups have made a competitive market even more competitive. However, obtaining a buying group approval may be the best way to establish a distribution channel in Spain, because so many warehouse distributors belong to them.

Another avenue for making contacts in Spain might be through consultation with U.S. commercial service agents who are posted in Spain. Commercial service agents, such as Perezminguez, can put exporters from the U.S. in contact directly with likely distributors for their products. Alternatively, one can attend trade shows both in Spain and throughout Europe that are generally well attended by Spanish distributors. The most popular aftermarket show in Spain is the Motortec Automechanika, which runs biennially in Madrid. According to Perezminguez, the 2015 edition of the show was up 25 percent over the last time it was held. The next show is slated for early 2017.

As with any foreign market, exporters should exercise proper caution when dealing with payments, credit and export compliance laws. That being said, Spain presents a wonderful opportunity for exporters of high-tech parts, tools and equipment, as well as those who manufacture parts for “tuners.”

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