Strategic Analysis of the Indian Automotive Aftermarket

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February 2015

High Market Growth Attracting New Entrants

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Contents

Section Slide Numbers

Executive Summary 3

Research Scope, Objectives, Background, and Methodology 12

Definitions and Segmentation 20

Country Overview 24

Automotive Aftermarket Overview 28

Vehicles in Operation Analysis 32

Parts Analysis 37

Service Analysis 45

Distribution Channel Analysis 54

OES Channel Analysis 71

Regulatory Influences 80

Technology Trends 84

Consumer Trends 87

Why Market Participants Should Consider Entering the Indian Aftermarket 90

Conclusions and Future Outlook 97

Appendix 101

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Key Findings Industry growth will be driven by old vehicle parc and the country’s strong market potential.

Automotive Aftermarket: Key Findings, India, 2014–2021

• The passenger vehicle aftermarket is estimated to grow at a CAGR of % for the following reasons:

o The growth of vehicles in operation (VIO) is estimated at % over the forecast horizon, with more

vehicles in the to year range requiring replacement.

o Vehicle maintenance needs are higher than average in India because of poor road infrastructure and

consumption of low-quality fuel.

o A strong economic growth forecast combined with an increase in disposable consumer income will

drive consumer spending habits on vehicle maintenance.

• Global automakers operating in India will increase the amount of locally made parts in vehicles, which

they sell in India to cut costs in a competitive market dominated by cheap small cars. This opens up

new growth opportunities for original equipment manufacturers (OEM) part providers and would make

the market more competitive.

• Counterfeit parts account for as much as % of passenger car aftermarket part sales. This is the

biggest challenge for the aftermarket and will continue to be unless regulations are imposed on selling

these parts.

• Due to increased competition in new car retailing, OEMs are looking to extend the relationship with

customers by ensuring that they continue to return to their dealerships for their servicing needs.

• Unauthorized multi-brand service chains are likely to take market share from original equipment service

(OES) and local garages.

Growth

Top

Trends

• India is a highly fragmented market with regional variations and no distributor has complete presence in

India.

• Gurgaon, Pune, and Bangalore forms the strategic locations for Indian OEMs to establish regional

warehouses, which distributes parts in the independent aftermarket.

Regional

Trends

Source: Frost & Sullivan

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Key Findings (continued) Independent aftermarket are projected to gain strength from OESs in vehicle servicing, repair, and replacement.

• The aftermarket in India is currently unregulated for both parts and services.

• Because there is no mandatory standard for products sold in the aftermarket, the production and import

of counterfeit products cannot be checked. This is a large challenge.

• Automotive Component Manufacturers Association (ACMA) plans to propose “incorporation of

aftermarket standards” in the “Motor Vehicles Act” to the government in 2015, which will make selling

counterfeit parts a cognisable and non-bailable offence.

• Key technology trends in India are:

o Implementation of Dealer Management Systems by OEMs in an effort to improve customer service

o Preference towards alternate fuel vehicles will increase in future

o Advancement of manufacturing process and parts technologies as part of the Go Green Initiative

o Internet emerging as key vehicle diagnostics source of information for aftermarket technicians

• As per Frost & Sullivan’s study finding on passenger vehicle service patterns in India, % of customers

do regular maintenance to increase the performance and life of vehicles. This would drive the

aftermarket.

• Close to % of the customers shift from the OES channel to the independent aftermarket for vehicle

servicing within two years of a car purchase. This means that automakers are losing out of owners

every years to independents. This is the biggest threat for automakers, who need introspection.

Competitive

Environment

• In parts manufacturing, the unorganized sector does not adhere to government stipulations poses a

significant threat to the organized sector (OEM and aftermarket part suppliers) because they are price

competitive.

• In vehicle servicing, multi-brand service chains are likely to be the biggest competitors for the OES

channel because they have a strong quality brand image.

Technology

Trends

Consumer

Trends

Regulatory

Influences

Source: Frost & Sullivan

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Aftermarket Parts Revenue Distribution by Product Category Servicing parts such as filters and brake parts will be the fastest growing category during the forecast period.

Tires %

Batteries %

Other Parts and Accessories

%

Collision Body Parts %

Oil & Lubricants %

Servicing Parts %

• Other automotive parts (e.g., engine and transmission parts, HVAC parts, fuel delivery system parts), as well as

accessories (e.g., body kits and seat covers), will dominate the aftermarket and is expected to continue to be the largest

revenue generator in future.

• Consumable servicing parts, such as filters, brake parts, spark plugs, and lighting, will be the fastest growing category and

will capture a greater share of the pie in future.

• Improved vehicle safety features are more likely to slow the growth of the collision repair parts market (CAGR %)

compared to the growth of the VIO in India (CAGR %).

Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan

Automotive Aftermarket: Aftermarket Parts Revenue Distribution by Product Category, India, 2014

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Automotive Aftermarket—Market Share by Channel and Repair Service Providers Independent Aftermarket (IAM) to gain from OES, and service chains to take away market share from OES and

independents.

OES Channel

%

IAM %

Automotive Aftermarket: Percent of Auto

Parts Sales by Key Channel, India, 2014

Key:

IAM (Independent Aftermarket):

Includes warehouse distributors,

wholesalers and auto parts retailers.

ASC—Authorized service center or

vehicle dealerships

OES—Original equipment service or

vehicle dealerships.

Automotive Aftermarket: Repair Market Share for

Post-warranty Vehicles, India, 2014

ASCs %

Service Chains

%

Independent Garages

%

IAM vs OES

• IAM expected to gain

from OES because of

standard quality

offering at a

competitive price and

providing parts at a

shorter turnaround time

Service Chains to Gain

• Service chains to gain

from others because of

lower waiting time at

workshops, and

availability of

competitively priced

genuine parts

Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan

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Automotive Aftermarket—Key Growth Drivers India is gradually becoming the manufacturing hub of auto components for most global OEMs. This opens up

new growth opportunities for OEM part providers and makes the aftermarket more competitive.

Automotive Aftermarket: Key Growth Drivers, India, 2015–2021

Economic Rebound: India faced its worst economic slowdown in years that has

depressed personal vehicle (PV) sales for consecutive years ending Q1 2014.Post

2014 elections, India earned a stable government after many years, which has begun

economic revival.

Steady Increase in VIO: Vehicle sales have been robust until 2012 and dipped in 2013,

but is forecast to show strong growth. This will result in increased VIO, which is forecast

to grow by % until 2021. This will drive demand for parts in the aftermarket.

Increasing Vehicle Age/Miles Driven: Indian consumers tend to use their vehicles longer and so

the number of vehicles older than years will grow. As road infrastructure improves (currently only

50% paved roads), consumers will drive more. Both these factors will drive the aftermarket.

Regular Scheduled Vehicle Maintenance: Of owners, % do regular maintenance to improve the performance

and life of the vehicle. This would drive the aftermarket. However, % of owners report that they do not follow the

manufacturer’s recommended schedule for maintenance, as they find it to be too expensive and frequent.

India becoming the Manufacturing Hub for Global Automakers: Global automakers operating in India will increase

the amount of locally made parts in the cars they sell in India to cut costs in a competitive market dominated by cheap

small cars. For example, Volkswagen had planned to soon make engines and transmissions in India so that it can raise

the locally made parts content in its vehicles from the current % to %.

Poor Condition of Roads Causes Increased Wear of Parts: The poor road conditions resulting from the use of substandard raw

materials, overloading, and weather conditions cause great damage to parts resulting in faster replacement. A faster replacement cycle

translates to higher demand for parts in the aftermarket.

Degree of Impact

Gro

wth

Dri

ve

rs

Low High Source: Frost & Sullivan

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Automotive Aftermarket—Growth Opportunities for Industry Participants Most Indian consumers change from authorized service centers (ASCs) to local service centers (LSCs) after two

years of vehicle ownership.

Source: Frost & Sullivan

• % of customers shift from ASCs to LSCs within years of purchase primarily because of greater waiting time at ASCs as they take in vehicles beyond capacity. IAM suppliers need to assist their service partners in seizing this opportunity by providing high quality parts at a lower price.

Capitalize on Opportunities

Created by OES

• IAM organized part suppliers should focus on supplying parts in high volumes to multi-brand service chain outlets such as myTVS, Carnation, Castrol Pitstop etc. because these service chains are expected to gain market share in future for providing value for money quality to car owners.

More Sales to Multi-brand Service

Chains

IAM Participants

• Compressed natural gas (CNG) vehicles have better acceptance than any other gasoline-diesel alternative in India. Currently, only % of owners have CNG vehicles, but is expected to gradually grow. IAM participants should begin to focus on servicing and repairing such vehicles.

Growth in CNG

Vehicles

• More than % of all prospective car owners/buyers go online before they walk

into a dealership. Dealers should invest in online marketing and social media

for better CRM results, brand building, and increasing sales without spending a

lot of money.

• Used car businesses and exchange programs help increase new car sales by

acquiring new customers, and retaining existing customers.

• Vehicle servicing accounts for less than % of dealer profits, so the used car

business has strong potential to overtake vehicle servicing revenue in the

future.

• OES is preferred for major and accidental repairs. Affiliations of OEM part suppliers with multi-brand service chains such as Bosch Car Service and Mahindra First Choice will be beneficial because of less costly labor rates and usage of low-cost genuine branded parts that attract vehicle owners.

Affiliations with Multi-brand Service

Chains

Used Car

Business Potential

Investment in Online Marketing

OES

Participants