Óscar Balcázar
Director America Region
GiPA
/
View from the Top

New Business Niches Promote Growth in Stable Sector

By Alejandro Salas | Mon, 07/13/2020 - 05:00

Q: How is the downturn in vehicle sales impacting the automotive aftermarket?

A: Traditionally, car sales promote growth in the aftermarket. Any situation with fewer car sales will have a negative impact on aftermarket sales. However, the negative effect is not perceived immediately. Moreover, there are many other factors that impact results more directly than vehicle sales, one of which is the need for fewer maintenance and corrective services. Today, Mexican passenger cars require aftermarket services around 2.48 times per year on average, which is 40 percent less than 10 years ago. Drivers are also circulating less, which means car parts do not wear out and last longer. Inadvertently, high-quality parts like tires or brake pads have worsened the problem, since manufacturers are constantly updating their technology and people have less need to change these parts. Even if the vehicle park continues to grow, the aftermarket industry will not necessarily experience this growth.

Opportunities are different. The vehicle park is growing but every vehicle is worth less in terms of aftermarket sales because you need to make fewer replacements. Companies need to understand that since the aftermarket is not growing, they will need to take market share from others. Another important opportunity lies in understanding that in Mexico, around 55 percent of passenger cars are 10 years old and getting older. A significant part of aftermarket sales should be destined to cars with older technology that have a more constant replacement cycle.

Q: What are the main regulatory challenges hindering the development of the aftermarket sector?

A: More than regulatory challenges, there has been an increase in the number of brands in the market, which generates more competition. For instance, we have aftermarket brands that were typically destined to a premium segment that today are trying to enter an intermediate segment. There are also cases where distributors that had a very defined role are venturing into the market with their own brands. Today, it is key for market leaders to transmit the advantages of their products to workshops and aftermarket distributors than to drivers.

Although many complain that illegally imported auto parts or cheap auto parts are hurting the industry, the truth is that low cost brands saw a boom around 2008 and 2009. Today, they do not represent the fastest-growing segment. After the economic crisis of 2008 passed, the premium segment experienced significant growth. However, for the past two years we have seen an increase in the intermediate segment that offers quality without being overpriced. 

Q: What is boosting growth in the intermediate auto parts segment above low-cost and premium brands?

A: Aftermarket retailers do not want to sell original equipment, while car dealerships are not interested in selling auto parts to independent resellers. A spare-parts shop, if it has the piece in stock, can deliver to the client in two hours. A car dealership cannot do that. This means there is more space for growth for intermediate brands.

Q: How can OEMs and other automotive players contribute to the growth of the Mexican aftermarket industry?

A: It is all about finding new business niches to develop within the aftermarket segment. Motorcycles are a good example. Although it is not a major market, it will continue evolving, given the appearance of new businesses where the motorcycle is an important component, such as Rappi or Uber Eats. Cars that work with Uber, DiDi, Cabify and even regular taxis present another area of opportunity. This sector has grown and even though it will not surpass private vehicles, it is worth creating specific value propositions that cater to it.

We also need to understand that socio political conditions impact the performance of the aftermarket. The uncertainty that surrounded 2018 and 2019 did not help to mitigate risks and it was common for people to delay aftermarket expenses that were not absolutely necessary, such as changing oil or tires. Maintaining a car is getting more expensive, which means drivers can only perform maintenance tasks that are necessary for the car to function. 

 

GiPA is a market intelligence agency with presence in over 30 countries that has been in Mexico for 15 years. It specializes in the generation of aftermarket intelligence

Alejandro Salas Alejandro Salas Senior Editorial Manager