Changing Times Call for Aftermarket Evolution

Contracting vehicle sales, combined with a diverse vehicle park, are taking a toll on aftermarket companies and pushing them to evolve. This means adapting to a new landscape, even if that entails a change in strategy. “Companies can introduce new products but they can also make significant adjustments to better manage their stock and improve operations,” says Michael Gines, Managing Director of Dacomsa.

The decline in sales has severe implications for all segments of the aftermarket. For example, lower production volumes per vehicle model means fewer units sold, which makes it more costly for aftermarket players to support the country’s highly diverse vehicle park. “Keeping stock of spare parts for all vehicles is an expensive and difficult feat that pushes distributors and importers to either specialize in a brand, segment or system or generalize their product offering and charge more,” Alejandro Calderón, Director General of Autopartes Calderón, says of the dilemma these companies face.

But while the current environment represents an obstacle for growth, Eduardo Tamer, Director General of Mikel’s, says it also opens up the door for marketing new products. “Greater diversity means more players will compete to support these vehicles. However, aftermarket business opportunities will also become more complex. We are now marketing tools that focus on one brand and even one model. As vehicles become more technologically complex, it is harder for mechanics to fix them, so shops need increasingly specialized tools that can, for instance, scan the electrical systems of a particular brand,” he says.

Companies like Mikel’s focus on providing solutions for the technology needs of newer models, but Calderón says Autopartes Calderón has found a significant niche in supporting the unique needs of older vehicles common to Mexican roads. According to Calderón, the company looks for aftermarket manufacturers that offer original equipment quality at a competitive cost, which means looking for parts both in Mexico and abroad. As a substantial percentage of the vehicles sold in Mexico are not produced locally but imported, Autopartes Calderón needs to go to the countries where these vehicles are assembled to find parts for them.

The challenge is not only for distributors. Specialized manufacturing companies such as Forjadora Mexicana de Tornillos, also face the difficulty of keeping prices and costs at bay when considering the production volumes needed to sustain manufacturing operations. "We make screws based on the needs of our customers. Everything is on demand and we have no stock," says Óscar Llamas, General Manager of Forjadora Mexicana de Tornillos. “The disadvantage of a screw is that it cannot be manufactured automatically. We produce different screws throughout the day to offset that gap in demand. This leads to delays and higher costs as operators must constantly manipulate the machinery to adjust it to each design."

An increasingly complex Mexican market has led to a higher degree of competition that is leading companies to look for efficiencies within their internal processes. For companies like Autopartes Calderón and Dacomsa, logistics has become a pivotal point for increasing efficiency. “We need to deliver components almost overnight after receiving an order or clients will take their business elsewhere,” says Calderón. Dacomsa has tackled the situation by switching from standard inventories to analyzing the lifespan of each product once it is sold to a distributor and adjusting production correspondingly. “We track the movements of each product and determine when it reaches a distributor or mechanic,” says Gines.

Despite the challenges, the Mexican aftermarket industry stands to benefit from two international developments: USMCA’s implementation and the trade war between the US and China. For Llamas, these events offer the possibility to turn the market around as the industry looks for national suppliers. Having said that, Llamas admits that there is a great challenge to overcome: “Customers are shopping for Chinese prices and that cannot continue,” he says.

Still, the opportunity is there. “Restrictions imposed by the US government on Chinese products will work to Mikel’s’ advantage because Asian companies now see us as potential integration partners. Thanks to our Mexico-based manufacturing facilities, we can help these companies meet USMCA’s requirements for regional content integration to ship these parts directly to spare parts retailers in the US,” says Tamer.

Looking ahead, Calderón expects Mexico to continue to offer many opportunities for growth in the automotive market and aftermarket. “Compared to Canada or the US, Mexico has few vehicles compared to the size of its population,” he says. Canada has over 37.6 million inhabitants and close to 35.1 million vehicles registered, while the US has a population of over 327 million people and a vehicle park of 200 million cars. Mexico, on the other hand, has 120 million inhabitants and only about 40 million vehicles registered, so there are huge areas of opportunity for the vehicle park and the aftermarket to grow.