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1 © 2016 Ipsos.1
Imminent growth in China's Automotive Aftermarket
© 2016 Ipsos. All rights reserved. Contains Ipsos' Confidential and Proprietary information and may not be disclosed or reproduced without the prior written consent of Ipsos.
2 © 2016 Ipsos.
China is experiencing a revolution in automotive aftermarket industry. Increasing vehicle population and car age, supported by positive government policies will create substantial aftermarket demand.
Changing consumer behaviors have also led to emerging business models and diversified distribution channels, which are expected to further drive the aftermarket development.
3 © 2016 Ipsos.
China’s independent auto workshops stand to benefit from the enforcement of new auto-related regulations and policies
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Remark*: Ministry of Industry and Information Technology; Source: Industry reports, Wind, AAIA, China Automotive Association, Ipsos Business Consulting analysis;
• Positive government push to better regulate the IAM. While barriers and OEM push backs (e.g. citing IP) might exist in short term, the direction is clear in the mid to long term
• The real effect of those changes, however will be largely dependent on the enforcement of relevant regulations and policies. As MIIT* was not directly involved in the policy-making process, the real effect of those policies is still a question mark.
Implications of Regulation
Anti-monopoly
Improving the transparency of
maintenance information
Encouraging the free circulation of auto parts
OEMs are forbidden to use warranty terms that mandates end-users do maintenance and repair in 4S shops
OEMs are required to provide independent repair shops with maintenance and technical information for all models as of 1st Jan, 2016
Encourage the usage of homogeneous parts; traceability systems for vehicle repair parts to be developed
4 © 2016 Ipsos.
Aftermarket industry value is estimated to double by 2020, driven mainly by repair and maintenance services
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry reports, Wind, AAIA, China Automotive Association, Ipsos Business Consulting analysis
Service types of Chinese Automotive aftermarketChina automotive aftermarket industry value (2013-20e, USD billion)
Repair and Maintenance
Second-hand vehicle
Auto rental and financing
Beauty and modification
Auto culture and training
Scrappage and recycling
Weak potential Strong potential
85
2171222
2019
17
19
2013 14 15 16 17e 18e 19e 2020e
Market Value Annual Incremental Value
5 © 2016 Ipsos.
Strong growth in car sales over the past years have led to significant number of out of warranty vehicles
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news, Wind, Ipsos Business Consulting analysis
Average age of passenger vehicles in major countries
Avera
ge a
ge o
f PV
(years)
PV Population Breakdown by Car Age (unit: millions)
Annual new PV sales2006 PV population
PV existing population
5.2 6.2 6.710.5
14.114.4
15.717.9
19.721.1
24.425.6
30.3
06 07 08 09 10 11 12 13 14 15 16 17e 20e
25.6
152173
Car ageOut of warranty by 2016:
116.1million
10 9 8 7 6 5 4 3 2 1
255
CAGR10.3%
3.5 3.7 4.0 4.4
4.8 5.0 5.4
5.9
0
3
6
9
12
2013 14 15 16 17e 18e 19e 20e
11.6
9.73
8.62
6 © 2016 Ipsos.
As vehicle age increases, consumers are also increasingly choosing non-4S shops for maintenance services
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Ipsos Consumer Survey of VW Consumer Survey, Ipsos Business Consulting analysis; *Remark: Ipsos conducted consumer survey with a total ~15k car owners of VW which accounted for 18% of total passenger car sales in China in 2015.
Consumer repair expenditure by service items (2015 IPSOS VW Consumer Survey*)
45.3%
23.1%
22.7%
5.8%3.0%
Spare parts
Labour cost
Oil
Tyre
Diagnostics fee
Spare parts expenditure by repair site by car age* (2015 IPSOS VW Consumer Survey*)
91% 84%74%
66%
5%8%
12%14%
3% 5%10% 16%
1-2 years 3-4 years 5-7 years 8-10 years
Other repair shops
Independent shops
Chain workshops
4S dealers
7 © 2016 Ipsos.
While 4S shops remains the preferred channel for repair and replacement of core components
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Ipsos Consumer Survey of VW Consumer Survey, Ipsos Business Consulting analysis; *Remark: Ipsos conducted consumer survey with a total ~15k car owners of VW which accounted for 18% of total passenger car sales in China in 2015.
Spare parts expenditure by product by car age (2015 IPSOS VW Consumer Survey*)
36%34%
31%
26%
21%
12%
16%
10%10%
14%
11%
6%10% 10%
5% 5% 5% 6%
3% 2%4% 3%
0% 1%4%
1-2 years 3-4 years 5-7 years 8-10 years
Filters
Bodywork
Electronics
Braking system
Exhaust system
Chassis
Engine/transmission
4S DEALERS
HIGH MEDIUM
LOW
CHAIN STORE INDEPENDENT
Preference level by repair site
8 © 2016 Ipsos.
Reasonable pricing, efficiency and convenient locations are key advantages of independent and chain stores
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news and reports, Ipsos Business Consulting analysis
Relative comparisons among major repair channels
ADVANTAGEPrice
Service range
EfficiencyQuality
Location
• Authorized by OEM• Guaranteed repair
during warranty• Availability of
original components
• Inflexible procedure of making appointment and repair
• High cost in parts and labor fees
• Wide repair coverage• Advanced testing
equipment and high repair quality
• Experienced technicians
Consumer satisfaction level across channels
• Limited repair items• Limited geographical
coverage
• Availability of original components
• Reasonably priced• Specialized services
• Unstable repair quality• Non-standardized
management
• Lower priced• Convenient location
• High efficiency• Transparent services• High repair quality
• Ease of appointment• High efficiency• Transparent services
DISADVANTAGE
4S DEALERS
CHAIN STORE
INDEPENDENT
9 © 2016 Ipsos.
32.3%
20.0%19.6%
15.6%
7.4%5.1%
East China South Central China
North China South West China
North East China North West
Second-hand cars will drive the independent aftermarket; tier 3 / 4 cities are expected to witness accelerated growth in the near future
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news and reports, Ipsos Business Consulting analysis
24%
23%
20102008
32%
22%
22%
25%
33%
22%
20%
2014
18%
34%
24%
24%
2012
20%
33%
24%
Tier 4 and below
Tier 3
Tier2
Tier1
Market share of new PV sales by city-tier
• With increasing urbanization and rising disposable income, lower tier cities are poised to be a major contributor to China’s vehicle population
• Also, influx of second hand vehicles will further compound the need for aftermarket services in lower tier cities
Sales volume of second hand cars in China (2010-20, million units)
4.3 4.8 5.2 6.1 9.4 10.4
29.2
2011 2012 2013 2014 2015 2016 2020
CAGR = 19.1%
29.4%
100% = 9.4 mn.
10 © 2016 Ipsos.
Auto parts manufacturers will need to develop new strategies to capture opportunities in the IAM
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news, Ipsos Business Consulting analysis
Distribution channel of aftermarket parts in China
Evolving channel Traditional flow Evolving flow
Auto parts manufacturers ONLINE
Brand Executive Shop
Self-owned Online shop
B2B E-commerce
B2C E-commerce
End Consumers
OFFLINE
O2O
O2ODistributors
4S dealers Independent / chain stores
• B2B ecommerce platforms are perceived as ‘game changers’ as they directly supply parts to workshops
• B2C ecommerce platforms are evolving towards both parts and service providers as most of them are either building internal service capabilities or cooperating with offline workshops to provide O2O services
• Some parts manufacturers have also entered into distribution groupsleveraging on both online and physical executive shops
11 © 2016 Ipsos.
Large-middle sized independent and branded chain stores will continue to grow
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Note: *Includes powertrain system, engine;**Includes engine, frame, body, and transmission assembles; ***Includes repairs to radiators, air conditioning, wheel alignment, etc. Source: Industry news, Ipsos Business Consulting analysis
Number of registered auto workshops, broken down by classification in China (unit, x1000)
Class 1*: Mostly 4S, and large scale independent workshops
Class 2**: Mainly branded and medium scale independent workshops
Class 3***: Small scale independent and traditional repair stores
250.0 306.0
58.0
70.6 12.0
14.0
2010 2014
391320
2015-2017(F)
Future trends
Long-term
• Compared to 4S stores, independent branded workshop chains and middle-small sized workshops enjoy higher growth potential due to light service channels’ high accessibility as well as strong price to performance ratio
• While the independent workshop segment is currently still very unstructured and fragmented, Ipsos believes that consolidation and standardization will take place in the short to mid term through the proliferation of e-commerce platforms and chained franchise models
12 © 2016 Ipsos.
Closer cooperation with B2B ecommerce channel has become an emerging trend for auto parts suppliers
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news, B2B platform homepages, Ipsos Business Consulting analysis
Current development of B2B ecommerce platforms
• B2B ecommerce platforms are shaping distribution landscape through building direct linkages between parts suppliers/1st-tier distributors and workshops
• Albeit only being able to fulfill 60%-70% of workshops’ current parts requests, such platforms offer workshops a one-stop purchasing experience
Online transactionsReached 9.8 bn RMB in 2015
Reached 1.5 bn RMB in 2015
Customer baseAim to cover 200,000workshops by the end of 2015
Aim to cover 100,000 workshops by the end of 2017
B2B Supplier
• Enlarge parts distribution coverage
• Obtain first-hand information on market demand
Parts suppliers (e.g. TRW (ZF), Bosch, Gates, Philips, DENSO, Federal-Mogul) have started strategic partnership with B2B platforms
13 © 2016 Ipsos.
Parts suppliers cooperating with B2B ecommerce platforms could further support to address challenges
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news, Ipsos Business Consulting analysis
Logistics / delivery
After-sales service
Ordering & payment
Pre-saleservice
Challenges
faced by workshops
B2B platforms’
current practice
Parts
Suppliers’ support
• Lag in after-sales servicequality and complex warranty terms and claim process
• Dedicated teams and after-sales service support
• Relatively flexible warranty terms and streamlined warranty claim process
• Offer technical support & trainings to help improve B2B platforms service capabilities
• Optimize warranty process
• Parts quality and authenticity
• Matching of parts and car models
• Quality assurance initiatives
• Internal database to ease matching process
• Support B2B platforms to improve the accuracy of parts database and mitigatecounterfeits
• Complex payment process
• Cash flow pressure
• Simplified payment process
• Cooperation with financial organizations to provide financing solutions
• Offer better credit terms to B2B platforms
• Long delivery time(97% of workshops would like for parts to be delivered within 12 hours of ordering)
• Better logistics partners to offer efficient delivery services
• Regional parts centers and warehouses
• Offer agile logistics solutions to cater to B2B platform’s logistics requirements
14 © 2016 Ipsos.
B2C ecommerce channels also present high growth potential for maintenance products and auto accessories
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Industry news, B2C platform homepages, Ipsos Business Consulting analysis
B2C platform type
Key players Business modelUser base
Productrange
• On-line sales has led to increased price transparency and price conflicts with offline channels in some cases
• With limited product knowledge as well as low DIY capabilities, PV owners often still opt for O2O cooperated auto workshops when it comes to parts repair and replacement
ExtensiveLimited resource
On-site service• Mainly offers light on-site services such as car wash and
car maintenance through internal service teams• Product ownership: on-site service channels
Specialized E-commerce
• Mainly sells maintenance products on-line and customers could choose cooperated offline workshops for service / installation
• Product ownership: specialized ecommerce channels
Open platform
• Open platform itself seldom offers services but certain e-stores offering services by cooperating with offline workshops
• Product ownership: combination of direct ownership of open platforms and e-stores
Parts suppliers’ website / flagship stores
• Mainly sells own products via both on-line and offline channels. Customer can get service from distributors or directly-managed offline workshops
• Product ownership: auto parts brands
15 © 2016 Ipsos.
In China’s dynamic aftermarket environment, value chain players are also constantly adapting their strategies
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Ipsos Business Consulting analysis
OEMs
• To transform from a manufacturer to a service provider
• To establish/invest in parts supply centers and workshop chains (e.g. 3S shops)
• To optimize cooperation strategy with parts suppliers
Parts Distributors
• To expand product portfolio so to broaden coverage and aim to establish regional distributor alliances and partnerships
• To explore and leverage on e-commerce for broader reach
4S Stores
• To achieve more independency from OEMs and transform from service orientation to be more customer-centric
• To optimize supply chain cost in order to close the pricing gap relative to IAM workshops
Independent Channels
• To improve technology and service levels, and ultimately credibility through establishment of brand reputation (potentially join chain / franchise networks)
• To capitalize on e-commerce leveraging on O2O service models
16 © 2016 Ipsos.
Key implications for parts manufacturers seeking opportunities in China’s Automotive Aftermarket
IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Ipsos Business Consulting analysis
Evolving service providers
E-commerceChannel
Aftermarket development
The continuing growth of China's automotive aftermarket means that parts manufacturers may slightly change their business focus from cooperating with OEMs for new car sales to optimizing their supply chains and reach in the aftermarket repair and maintenance segment
Auto parts manufacturers can provide quality control and other standardized, value-adding services such as product training and technical support to complement and leverage on the reach of independent / chain stores. Synergy in this area will also create a win-win situation for all stakeholders
The rise of e-commerce across the industry means that parts manufacturers must keep up with advancements in distribution or risk being left behind. The optimal channels (B2B or B2C) and exact platform / distribution partners to cooperate with will depend on individual parts manufacturers’ goals and appetite
17 © 2016 Ipsos.
China’s aftermarket players have many challenges to address…IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Source: Ipsos Business Consulting analysis
TARGETS AND GOALS
WHO TO TARGET
WHAT TO TARGET WITH
HOW TO TARGET
WHERE AND WHEN
• How much is
independent
aftermarket
contributing to overall
sales in overseas
market?
• How much is expected
in China?
• Which segments of car
owners?
(demographics,
household income,
specific car models
based on OEM sales?)
• Will-fit parts for most
popular models in
China?
• What is the value
proposition to
consumers? (Genuine
parts, brand, quality,
price, warranty period,
accessibility?)
• What are the value
propositions to
distributors,
workshops and even
mechanics?
• Pull, push or a
combination of both?
(Brand building and
distribution coverage
expansion, workshop
and mechanics
incentivization?)
• Which channels to
focus on, and which
opportunities to focus
on for traditional, B2B
and B2C e-commerce?
• Focus on Tier 1 and 2
cities? Phased
entrance into Tier 3
and 4 cities?
18 © 2016 Ipsos.
ABOUT IPSOS BUSINESS CONSULTING
19 © 2016 Ipsos.
Introducing Ipsos Business Consulting IMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Ipsos Business Consulting is dedicated to helping our clients to build, compete, and grow.
We help clients to navigate volatile market dynamics by providing key insights to enable informed business decision making. Our team of dedicated emerging markets experts provide fact-based consulting services to support our clients every step of the way, whether to expand on current position, evaluate growth markets or develop new products and services.
“Our team of dedicated emerging market experts provide you with fact-based consulting andmarket intelligence that enable you to make the right decisions under pressure”
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Local knowledge with a global reachIMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Ipsos Business Consulting Hubs
Ipsos Offices
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21 © 2016 Ipsos.
Our service range in automotive related industriesIMMINENT GROWTH IN CHINA'S AUTOMOTIVE AFTERMARKET
Au
tom
oti
veR
elat
ed
Auto OEM
Vehicle Parts
Other Vehicle
Related
Various types of vehicles:• Commercial vehicles• Passenger vehicles
Various types of parts & components for vehicles:• Engine and engine parts• Filters• Tires• Other parts
Other auto-related products:• Automotive lubricants• Automotive coatings• Other products
Construction
Vehicle OEM
Various types of construction vehicles:• Excavator• Bulldozer• Forklift
ClientsProduct coverage
• Dump truck• Other construction vehicles
22 © 2016 Ipsos.
Contacts
Markus SchererGlobal Automotive Sector Leader
+852 2839 0647
Wijaya NgHead of Consulting,Greater China
+86 21 2231 9598
Kate GaoConsulting Manager,Shanghai
+86 21 2231 9267
Gloria YangConsultant, Shanghai
+86 21 2231 9502
23 © 2016 Ipsos.
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